With negotiations stalled on a hoped-for equity investment from Taiwan's Hon Hai, Sharp has set in motion a contingency plan that will see it put up nearly all of its domestic real estate as collateral for up to $3.8bn in bank loans.
On Thursday, a representative for the embattled TV and smartphone component maker confirmed to Reuters that it had mortgaged "almost all the business sites owned by Sharp in Japan," including its Osaka headquarters, its offices in Tokyo, and 11 factories.
Among the factories is the Kameyama plant where Sharp has been manufacturing small LCD screens for Apple's new iPhone, which the fruity firm is due to unveil in a press event on September 12.
Although the high-volume Apple deal was initially perceived as a windfall for Sharp, it may not now pay off as well as hoped, because the difficulties of manufacturing Apple's new, slimmer touch screens have led to low yields on the Kameyama production line.
That's bad news for Sharp, which has already seen its stock downgraded to "junk" status by Standard & Poor's after reporting a loss of nearly $1.8bn for the quarter ending in June and watching its shares tank to their lowest price in 40 years.
In late August, Sharp announced that it was close to a deal with Hon Hai, the parent company of iPhone labor camp Foxconn, that would net it both an $854m cash infusion plus some Foxconn know-how to boost capacity in its plants.
When those talks seemingly broke down last week, however, Sharp switched to Plan B. On Friday, Reuters reported that Mizuho Financial Group and Mitsubishi UFJ Financial Group had agreed to provide financing of up to 300 billion yen ($3.8n) by as soon as September 20, whether or not Hon Hai still wants to buy a piece of Sharp, but only if the TV maker puts up its properties to cover the loans.
That might actually be the easy part. Also as part of the deal, Sharp will be required to fix the problems in its LCD manufacturing to make it more profitable, as well as plug the holes in its Aquos TV business, which has taken a beating due to low global demand. Without the hoped-for technology partnership with Hon Hai, either one could be a tall order for the struggling firm. ®