Hon Hai Precision Industry Co has reached a basic agreement with Sharp Corp’s banks over a ¥300bn ($2.7bn) credit line, according to the Yomiuri newspaper, potentially clearing a hurdle towards a takeover of the Japanese electronics maker.
Under the agreement, Sharp would be able to borrow from its main banks, Mizuho Financial Group and Mitsubishi UFJ Financial Group, if it suffers losses from potential liabilities or needs new investments, the Yomiuri said, without giving the source of the information. The banks are also considering waiting for about a month on Sharp’s repayment of about ¥510bn in loans due at the end of March if talks with Hon Hai are prolonged, according to the newspaper.
Sharp spokesman Yoshifumi Seki declined to comment, while calls to Mizuho and MUFG went unanswered yesterday. Louis Woo, a spokesman for Foxconn Technology Group, Hon Hai’s parent company, said in an e-mail that “there is no update from our side.” The credit line would move forward a more than ¥600bn takeover that has been stalled almost since Sharp’s board agreed to it last month. Within hours, Foxconn said it would postpone finalising the deal after new information provided by Sharp included about ¥300bn in potential liabilities for restructurings and layoffs, people familiar with the matter said at the time. Earlier this week, Foxconn again said it would delay the agreement in order to review Sharp’s performance in the current quarter, asking the Osaka-based company and its auditor for the latest financial results, said people with knowledge of the matter.
Foxconn’s lawyers and bankers have sorted through the contingent liabilities and concluded earlier this month they will likely not require major changes in the board-approved deal, people familiar with the matter have said. The Taiwanese company is taking extra precautions with the period’s financial results because of the last-minute notice about the liabilities, the people said. Sharp’s board chose Foxconn’s bid over a competing offer from Innovation Network Corp of Japan, a government-backed investment fund that planned to pay about ¥300bn.
Sharp has forecast a ¥10bn operating profit for the year ending March 31 and didn’t give net income or quarterly outlooks. The company will probably report a net loss of ¥23.9bn in the final three-month period, according to an average of four analyst estimates compiled by Bloomberg.
The company has been losing money for years and its need for financial support set off the takeover battle between Foxconn and INCJ last year. Its cash totalled ¥208.5bn at the end of December, according to data compiled by
 Bloomberg.