By Patrick Rial
Dec. 22 (Bloomberg) -- More Japanese companies are likely to cut dividends as the global recession puts increasing pressure on them to preserve cash, according to Goldman Sachs Group Inc.
The yen climbed to the strongest level in 13 years against the dollar last week, eroding overseas profit, while widening bond spreads have stymied debt financing, according to Christopher Vilburn, a Tokyo-based analyst at Goldman Sachs. Meanwhile, stock market declines are reducing the value of cross- shareholdings, further weakening company balance sheets, he said.
“After such rapid yen strengthening, we think many exporters will find it difficult to remain profitable,” Vilburn said in a report dated Dec. 20. “Credit costs are soaring and debt markets are barely functioning. In this environment, we expect some companies will be much more eager to hold on to cash.”
Toyota Motor Corp., which the Sankei newspaper said yesterday may cut its dividend for the first time ever, could slash the payment from 140 yen a share in 2007 down to 5 yen for the year ending March 2010, according to Goldman Sachs. Nintendo Co., which projects a 970 yen payout for the final six months of the year, may reduce that by 19 percent to 790 yen.
Electronics and auto companies are among those that may not pay any dividends at all in the 12 months to March 2010, according to the report. Sumco Corp., the world’s No. 2 maker of silicon wafers; Shinko Electric Industries Co., a maker of flip- chips used to connect circuitry; and muffler-maker Futaba Industrial Co. are among companies Goldman Sachs forecasts won’t make payments for the next two years.
Honda Motor Co., Japan’s No. 2 carmaker, and precision-tool maker Mitsui High-Tec Inc. are among domestic companies that have already reduced planned dividends.
Earnings Signal
“Cutting dividends directly affects shares, and businesses usually avoid doing so as long as the deterioration in earnings isn’t prolonged,” said Mitsushige Akino, who oversees the equivalent of $468 million at Tokyo-based Ichiyoshi Investment Management. “If Toyota cuts its payout, it would send a signal to investors that the earnings slump will be longer than expected.”
Unicharm Petcare Corp., the nation’s biggest maker of pet food, and Kurita Water Industries Ltd., which produces distilled water used in electronics manufacturing, are among companies that could substantially increase their payouts in each of the next two years, Vilburn wrote.
To contact the reporter for this story: Patrick Rial in Tokyo at prial@bloomberg.net
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