- November 15, 2012
A quality television maker is not necessarily a quality investment
Gone were the days when anything Japanese signalled excellence and quality. A Toyota Motors investor, happy with the new Toyota Camry he bought, could sit safely knowing that at the end of the day he could let the products speak for themselves and that the company would work its way out through thick and thin. Then came the rise of South Korea. Now, while the Japanese may still make quality products, the investment proposition of those same Japanese companies is dwindling as South Korean manufacturers manage to make their own quality products with arguably lower costs and better looks. Quality used to sell products, especially in electronics and technology, but now new sleek updated looks are becoming just as important.
As can be seen in the activity of the Japanese electronics companies’ credit default swaps – all of which indicate increasing chances of default – investors are getting skittish and in some cases, dumping their Japanese investments in droves ahead of any startling surprises that may be in store. Even Sony, at one time THE top name to buy for anything electronic, is seeing investors price their chances of defaulting in 5 years at 30%. While a far cry from Japanese competitor Sharp’s near-certain (95%) expectation of default, it still indicates the weary outlook investors have on the survival of Japan’s once formidable electronics sector.
The cost of insuring 1 billion yen ($12.4 million) of Sharp’s debt for five years rose by 125 million yen in the past month to 680 million yen in advance and 10 million yen annually, according to data provider CMA. Credit-default swaps of Panasonic and Sony Corp. (6758) have also surged, with contracts pricing in a non-payment risk of about 30 percent. Those for South Korea’s Samsung Electronics Co. were little changed in the period, the data show. …….
Fitch Ratings cut Sharp from one level above junk, or non- investment grade, by six steps to B-, after the company forecast last week a record $5.6 billion full-year loss and said there’s “material doubt” about its ability to survive. Panasonic, Japan’s No. 2 TV maker, had its debt rating lowered two levels by S&P on Nov. 2 after predicting it’ll lose 30 times as much money as analysts estimated. ……
Sharp’s 94.9 percent chance of default in five years is based on the assumption that investors would recover 27 percent of the bonds’ value if the company fails to adhere to its debt commitments, an expectation that CMA lowered from 30 percent a month ago. ……
Panasonic’s credit-default swaps jumped 91 basis points to a record 472 on Nov. 1, according to CMA, which is owned by McGraw-Hill Cos. and compiles prices quoted by dealers in the privately negotiated market. The contracts are signaling a 29.9 percent probability of non-payment in five years assuming investors would recover 35 percent of the notes’ value.
The bond risk of Sony, Japan’s biggest consumer-electronics exporter, rose 32 basis points to an all-time high of 488 on Nov. 1, according to CMA. That indicates a 30.4 percent probability of default through 2017, assuming that holders get back 35 percent of the value of the debt.
Not all Japanese electronics companies are seeing their credit risk increase. Swaps of Canon Inc., the world’s largest camera maker, fell nine basis points to 50 last month, according to CMA. A decrease in the contracts signals improving perceptions of creditworthiness, while an increase suggests the opposite.