Japan’s big companies are planning the biggest “garage sale” in history by hoping to offload properties and assets worth about $3 billion. The Viera TV maker, Panasonic, is looking forward to gain cash by selling a part of about 10 million square meters of factory and office space, sports facilities for its sports teams that includes rugby, baseball, and women’s athletic teams, as well as dormitories for its workers. The move is the latest attempt by the struggling conglomerate to find another source of much needed cash, and as a way to trim its fixed costs in time when it is facing tough competition from rivals like the South Korean Samsung Electronics Co.
Other homegrown rivals like Sony Corp and Sharp Corp are also planning a similar move.
Panasonic projects to offload properties worth $1.3 billion towards the end of March next year, according to the company’s chief financial officer Hideaki Kawai.
While declining to specify which properties are going on sale, Kawai said that most of them are in Japan.
“We have a lot of land and buildings in Japan and overseas,” he said.
Included in the list of the possible sale is the 24-storey Tokyo block built in 2003 boasting more than 47,300 square meters, Reuters’s sources said.
Kawai also mentioned that Panasonic will be selling its shares from other companies to further raise funds. This practice of cross-shareholdings is common in Japan.
The total projected proceeds of 200 billion yen or $2.43 billion will boost the company’s cashflow, and will also let it reduce its debt but maintain its critical research and development as it tries to compete.
More assets will be sold off starting April if the company’s cashflow will go below 200 billion yen, Kawai noted. President Kazuhiro Tsuga plans to sell businesses operating below a 5-percent margin starting April if necessary.
The fixed assets of Panasonic is priced at around $21 billion, about 30 percent larger than Apple Inc’s, and is almost twice as big as total company value. Panasonic started about a century ago as a tiny electrical extension socket manufacturer. It is currently trading at about half of its book value. Sharp trades at around 30 percent of book, while Sony at 39 percent.
The fixed assets of the three companies, which includes land, buildings, and machinery, combines to around $42 billion, translating to about $24 billion in market value. These fixed assets were once a byword for innovation in household gadgetry.
Cashflow is critical
The credit ratings of Japan’s three big companies have been downgraded recently by credit rating companies, making it difficult for them to secure funding from capital markets. This makes getting rid of fixed assets an important step to continue their operation.
Analyst Alvin Lim of Fitch Ratings from Seoul said that selling their company assets is good in terms of their credit ratings because, for all three, it will lower fixed costs and they can reduce their capex requirements. Eventually, this could improve operating margins and, more importantly, cashflow.”
Credit rating company Fitch makes its ratings without input from management. It cut Panasonic’s rating to BB, while giving Sony a BB minus. It’s the first time that one of the biggest rating agencies provided both companies with junk ratings. Sharp was given a slightly higher rating of B minus after securing some money from lenders.
Osamu Kobayashi, an analyst at Standard & Poor’s said: “We rate Panasonic as investment grade, and it should have various funding options. Selling assets it can do without, to avoid raising additional borrowing, can be an option.”
Japan Electronics and Information Technology Industries Association report shows that the country’s production of consumer electronic equipment decreased from $19 billion a decade ago to $15 billion last year. The total output last year only totals about $980 million, which is about half of last year’s.
Each of the three companies are now looking for their own paths to regain their top-tier positions. Panasonic is looking forward to revitalizing its auto parts, batteries, and household appliances businesses. Sony is tackling the smartphones, cameras, and gaming markets. Sharp now focuses on display screens and is securing financial ties with the U.S. chip manufacturer Qualcomm Inc and Taiwan’s Hon Hai Precision Industry.
To further bolster its cashflow, Sony may also sell its New York headquarters, a 37-storey building called by many as “Chippendale”. The property is valued at around a billion dollars.
Sony, which makes Vaio laptops, Bravia TVs and PlayStation gaming platform, is also expected to sell its battery making division, which produces lithium battery packs for tablets, mobile phones, and PCs. Reports have circulated that investment banks are offering Sony to sell the division, which currently employs about 2,700 workers and includes 3 factories in Japan as well as two assembly plants abroad. The company values the business at around $636 million.