Japan's Sharp ditches US$2b share issue plan after stock sell-off

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TOKYO (June 29): Japan's Sharp Corp scrapped a plan to issue up to US$2 billion in new shares, changing its mind in a matter of weeks after its shares slumped as investors worried about dilution to its earnings.

In a statement on Friday, Sharp cited worries about trade frictions between the United States and China. "Due to increasing market uncertainties, the company decided that carrying on with the plan to issue new shares would not yield maximum benefit for shareholders," it said.

Sharp shares opened up 15% as investors cheered the about-face by the company, owned by Taiwanese contract manufacturer Foxconn.

The plans to issue new shares, first announced on June 5, had sparked a sell-off on the market as they would have diluted Sharp's earnings per share by about 20%.

"The shares fell after the announcement, so they decided to quit. It's that simple," said Masayuki Otani, chief market analyst at Securities Japan.

"To announce a new share issue, and then say 'we changed our mind' because the shares fell... that's not common but not unprecedented."

The company first announced the plan on June 5, saying it would use the funds mostly to buy back preferred shares that were issued to banks in return for a financial bailout in 2015. The plan was finalised just a week ago.

The company had tried to persuade investors that the issuance would benefit them in the long run, saying dilution would be more if the preferred shares were converted into regular stock.

Sharp's shares sank 21% since the June 5 announcement until Friday's open, compared with a 1% fall in the broader Tokyo stock market over the same period.

The display and consumer electronics company said it would continue to discuss with the banks to dissolve the preferred shares.

The share issue plan followed a recovery by Sharp under Foxconn, the world's biggest contract manufacturer, which took control of the Japanese company two years ago.

Sharp recently posted its first annual net profit in four years, helped in large part by cost cuts but also by the sales network in China of Foxconn, which is formally known as Hon Hai Precision Industry Co Ltd.