Sanyo Making a Clean Break from the Past - But Investors Should Be Cautious (SANYY)

Includes: GS, SANYY
by: Steven Towns

Reuters reports that Satoshi Iue, the eldest son of Sanyo's (SANYY) founder will announce his intention to resign as executive director as early as tomorrow. Sanyo has fallen on hard times in recent years and it is forecasting a US$2 billion loss this fiscal year. The Osaka-based electronics maker is desperate to return to profitability although it's not yet clear whether its restructuring efforts are working.

Sanyo will raise 300 billion yen (US$2.6 billion at Y115/US$1) by issuing new shares with Goldman Sachs (GS), a unit of Daiwa Securities SMBC and Sumitomo Mitsui Bank doing the underwriting. The Asahi Newspaper reported that Sanyo will make a twin announcement of Iue's resignation and the capital raising. My concern is the same as Sanyo's current and potential investors: share price dilution after such a huge issuance.

Note that Sanyo's ADRs (SANYY) were created at a 1:5 ratio explaining why its 322 yen share price in Japan (as of Tuesday's market close) is equal to $14.10 for its ADRs (as of Monday's market close), down almost 18.5% from their 52-wk established last spring. Factoring in the ratio and the current exchange rate, its ADRs are priced correctly with little if any premium.

SANYY 1-yr chart:

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