One of Olympus Corp's top shareholders, Nippon Life Insurance, cut its stake in the scandal-hit Japanese firm but signaled on Thursday it would remain as an investor in the company, citing its strong core business and technology.
Olympus, which makes cameras and medical equipment, is being investigated by police, prosecutors and regulators after admitting this month to hiding investment losses for decades and using payments linked to acquisitions to aid the cover-up.
Nippon Life, which cut its holding to 5.11 percent from 8.18 percent, said it had done so due to uncertainties surrounding the company but would still back the firm.
Our basic stance is that we will continue to support Olympus due to the company's high technological strength in its core business and because it is in the public's interest, said Akira Tsuzuki, an official at Nippon Life.
Olympus, which employs nearly 40,000 people, is the global leader in endoscopes and its optical technology may have defense applications.
Olympus may sell assets to help pay down $3.4 billion in debt under a plan aimed at keeping the support of its banks, the Nikkei business daily said. Their backing is vital because the firm is relatively highly geared and is expected to have to make some hefty writedowns after its accounts are put straight.
The once-proud company put forward the debt-reduction proposal at a meeting with creditors on Wednesday, offering to cut its debt by about 260 billion yen ($3.4 billion) over the next three years, the Nikkei said.
The paper quoted a senior banker as saying Olympus did not face any imminent cash crunch.
The dubious M&A payments included a huge $687 million fee paid to obscure financial advisers for Olympus's $2.2 billion purchase of British medical equipment firm Gyrus in 2008. The fee is the world's biggest, according to Thomson Reuters data.
Shares in Olympus, which have lost 70 percent of their value since the scandal broke last month, see-sawed in heavy trade on Thursday, surging by as much as 18 percent then giving up almost all of those gains to end 0.95 percent up at 747 yen.
Investors are betting that the firm will escape a delisting, although executives deemed responsible for the scandal may well face criminal charges.
Fumiyuki Nakanishi, strategist at SMBC Friend Securities, said banks were major shareholders as well as lenders to Olympus and none of them would benefit from a delisting, which would effectively cut the firm off from equity capital markets.
The big shareholders of Olympus are the banks. They're the ones that are going to suffer if Olympus shares turn into scrap paper, said Nakanishi, noting Olympus still needed to meet a December deadline for publishing its half-year accounts.
If Olympus does hand in its results by December 14 and there are no further uncertainties, the stock will continue its climb on a view that it will not be taken off the Nikkei 225 or be delisted.
TO DELIST, OR NOT?
The Tokyo Stock Exchange has put Olympus on a watchlist as a possible prelude to delisting.
If the firm does not meet the December 14 deadline, it would be automatically delisted. The bourse can still delist its shares depending on the scope of the misstatements. But a securities watchdog source has said it might recommend that the company be fined, a move that could decrease the risk of delisting.
Institutions and funds are selling their holdings of Olympus, but as long as the company looks as if it might avoid delisting, hedge funds and speculator traders will keep buying it back, looking for short-term gains, said Masayoshi Okamoto, head of dealing at Jujiya Securities.
But, he added, the rising trend could turn around quickly if the company began to look like it might miss the deadline.
In a sign Olympus expects its core businesses to keep ticking over, the company showed creditors a tentative operating profit forecast of 35.6 billion yen for the year to March 2012, the Nikkei said. That would be significantly lower than a previous forecast of 50 billion yen announced in August, but about flat on the figure it announced for last year.
Olympus has told its creditors that its acquisition costs for Gyrus were overstated by 33.4 billion yen ($434 million) at the end of fiscal 2010, the Nikkei said, though an independent panel commissioned by Olympus was still probing the matter.
If this were the only writedown, such an amount would put a big dent in the company's equity but not destroy it.
At Wednesday's meeting, which involved about 100 bankers, two major creditors, Sumitomo Mitsui Banking Corp and Bank of Tokyo-Mitsubishi UFJ (BTMU), said they would continue to support the firm, multiple sources told Reuters.
Sumitomo Mitsui Banking Corp is the core banking unit of Sumitomo Mitsui Financial Group, and BTMU is the main unit of Mitsubishi UFJ Financial Group.
Olympus' interest-bearing debts stood at about 650 billion yen ($8.45 billion) on a consolidated basis as of end-March. SMFG and BTMU have total loans of over 400 billion yen to the firm, which also borrowed about 100 billion yen in syndicated loans, according to banking sources.
($1 = 76.950 Japanese Yen)
(Additional reporting by Mari Saito, Yoko Kubota, Lisa Twaronite and Isabel Reynolds in Tokyo; Writing by Linda Sieg; Editing by Mark Bendeich)