Japanese consumer electronics company Sharp Corp.'s plan to repurchase ¥200 billion of preferred shares held equally by Mitsubishi UFJ Financial Group Inc. and Mizuho Financial Group Inc. is credit positive for the two banks, Moody's said.
The rating agency said the preferred stock redemption will allow the two banks to substantially recover all of the loans that had been swapped to equity in 2015 to support then-distressed Sharp.
Sharp on June 5 announced plans to purchase 100,000 preferential shares each from Mitsubishi UFJ Financial and Mizuho Financial for a total of ¥185.02 billion, which is equivalent to the ¥200 billion face value of the preferred stock minus the dividends received to date. The amount is lower than the face value but it is a much better outcome than if Sharp had defaulted, Moody's said.
Mitsubishi UFJ Financial and Mizuho Financial in June 2015 purchased Sharp's preferred shares of ¥100 billion each. The financial assistance from the two banks helped Sharp avoid a default.
Credit losses for the two banks would have been substantial had Sharp failed because the average recovery rate of loans to defaulted large Japanese corporate borrowers is somewhere in the range of 13% to 19%, which is much lower than the 40% to 60% global average recovery rate, Moody's said. The recovery rate of preferred stock, if any, would have been close to zero.
As of June 8, US$1 was equivalent to ¥109.47.
