Breakingviews: Olympus $1.2 bln share sale fails zoom-lens test

Fri Jul 12, 2013 8:46am IST

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(The author is a Reuters Breakingviews columnist. The opinions expressed are her own)

By Una Galani

HONG KONG, July 12 (Reuters Breakingviews) - Without a zoom lens, it’s hard to see the logic in Olympus’ (7733.T) $1.2 billion share sale. Less than two years after a huge accounting fraud, the Japanese company is tapping capital markets. But the camera and medical equipment maker’s decision to sell shares only outside of Japan is a poor way to thank local shareholders who endured the dark days. Besides Olympus’ finances were already on the right track.

Since ex-chief executive Michael Woodford first questioned Olympus’ accounting, the company has made remarkable progress. After a management overhaul, asset disposals, and a capital infusion from Sony (6758.T), Olympus registered positive earnings in the full year that ended in March; its shares are one quarter above their pre-scandal level. The new cash will expand its fast-growing medical business and help pay down debt.

Yet Olympus doesn’t have any urgent need for cash. While its net debt is still high at around five times EBITDA for the year ending March 2013, according to Eikon, the amount due within a year was only equivalent to 60 percent of the company’s cash pile. That would leave almost $900 million that Olympus can draw on before it has to turn to shareholders. The share offer will take Olympus’ equity from 16 percent of its total assets to over 28 percent. But at the current rate, Olympus would have got there eventually anyway without selling new shares.

Then there’s the potential dilution. Japanese investors can’t buy the new shares locally - perhaps because Olympus senses foreign investors are keen to buy into Japan’s recovery. That may dilute their holdings by 8 percent, though the eventual effect will become clear when the price is set, sometime around July 18. Determined local institutions may be able to participate through offshore entities but non-financial and retail investors will find it hard to do so.

The people who will most welcome Olympus’ cash call are likely to be its lending banks. They also rank amongst its top shareholders – and the former executive of one big lender is chairman of the board. But given the lack of urgency, it’s hard to see other investors being as snap happy.

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CONTEXT NEWS

- Japan’s Olympus Corp said on July 8 that it will raise up to 118 billion yen ($1.17 billion) in an offering of new shares.

- Olympus will offer 32 million new shares and 4 million existing treasury shares. An additional 5 million shares may be sold in an overallotment. The number of shares outstanding as of July 11 was 306 million, according to Eikon data.

- The stock will be priced as early as July 18. The estimated amount to be raised was calculated based on the closing price on July 4 of 3,120 yen a share, according to a filing to the ministry of finance.

- The shares will be offered and sold in offshore transactions to institutional buyers, mainly in the United States and Europe.

- On July 3, the Tokyo District Court found three former executives of Olympus guilty of covering up the firm’s massive investment losses and handed them suspended prison terms.

- Shares in Olympus are trading around one quarter above where they were in October 2011 before the financial scandal came to light.

- The company’s shares had fallen almost 1 percent since Olympus announced its plan to raise capital, and closed at 3,065 yen on July 11.

- Olympus will sell the shares through SMBC Nikko Capital Markets, UBS, and Morgan Stanley.

- Reuters: Olympus hits one-month low, plans up to $1.17 billion in share issue [ID:nT9N0BQ02C]

- Olympus press release here

- For previous columns by the author, Reuters customers can click on [GALANI/]

(Editing by John Foley and Katrina Hamlin)

((una.galani@thomsonreuters.com))

((Reuters messaging: una.galani.thomsonreuters.com@reuters.net)) Keywords: BREAKINGVIEWS OLYMPUS RAISING

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