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Sharp & Renesas Get Bailouts: Who's Next?
TaksonIC.com    Issue Date: [2012/10/17]   Browse Times: [3290]

Jennifer Baljko

Whether you live in Europe or in the United States, bailouts have become a common phenomenon. Banks, countries, pension funds, and auto makers have all gotten cash infusions to keep them afloat.

As the economic crisis drags on, high-tech companies are now also seeking public assistance. Just recently, Japan's Sharp Electronics Corp. and Renesas Electronics Corp. (Tokyo: 6723) each secured billions of dollars to plug immediate debt holes.

Japanese banks have put up more than $6 billion in loans to resolve Sharp's and Renesas's near-term cash crises, but doubts about their future still linger, according to a Reuters report. Chipmaker Renesas in August forecast its worst-ever annual loss, blaming sinking prices and a strong yen, and Reuters cited sources that expected 100-year-old Sharp to lose more than 100 billion yen ($1.29 billion) this fiscal year because of competitive pressure from rivals such as South Korea's Samsung Electronics Co. Ltd. (Korea: SEC).

Sharp, which makes TVs, microwaves, and other consumer devices, confirmed in September that it received a 360 billion yen bailout led by Mizuho Financial Group and Mitsubishi UFJ Financial Group, notes Reuters. To secure bank backing, Sharp had to agree to drastic cost cuts such as selling overseas TV assembly plants, possibly to Hon Hai (doing business as Foxconn), and shuttering overseas solar panel operations.

Meanwhile, Renesas said it has secured 161 billion yen in syndicated loans from four Japanese banks including Mizuho Corporate Bank Ltd and Bank of Tokyo-Mitsubishi UFJ Ltd to refinance its debts, according to a wire story.

So, could we be seeing more of these kinds of requests from other high-tech companies in Japan or other geographies? I'm not an expert in this kind of stuff, but my general feeling (and perhaps this is because I live in Barcelona and hear all too often about the Catalan, Spanish, and European debt problems) is that the worst is not yet behind us. The economic crisis is still being felt in many sectors, negatively affecting demand and forcing extreme austerity measures and corporate reorganizations. So, my guess is yes, more companies and industries will be deemed worthy of protecting and receiving bailout loans because of the potential impact of their failure on national GDP.

Should these companies be bailed out? I'm not sure. Obviously, high-tech companies' well-being affects thousands of employees, and a lack of bailout support could put a country's wealth in greater jeopardy. And, yes, the chances of recouping payment on loans are much higher if the company continues to operate.

But I also subscribe to the idea of survival of the fittest. Not all companies will survive this extended global recession. Some line has to be drawn on when it's reasonable to stop throwing good money after bad. That line, however, seems to be drawn in sand and not in concrete.

Reprint From ESMCHINA

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