Notice Concerning Introduction of New Hybrid Finance (Subordinated Loan) and Early Repayment of Existing Hybrid Finance (Subordinated Loan)
NEC Corporation (the "Company") announces that the Company decided to introduce a new hybrid finance (subordinated loan) (the "New Subordinated Loan") and make an early repayment of the existing hybrid finance (subordinated loan) (the "Existing Subordinated Loan", and the early repayment of the Existing Subordinated Loan and the introduction of the New Subordinated Loan are collectively referred to as the "Refinancing").
- Purpose of the Refinancing
The purpose of the Refinancing is, while complying with the replacement restrictions (*1) under the Existing Subordinated Loan, to have appropriate control on interest costs and ensure flexible financial strategy. Stock dilution will not occur since the New Subordinated Loan does not contain any conversion to the shares of the Company's common stock.
- *1: For making an early repayment of the Existing Subordinated Loan, the Company may raise the funds, within the 12-month period prior to the date of such early repayment, by means of issuance of new shares or other financial instruments such as subordinated loans etc. that has been approved by credit rating institution to have the "equity credit attributes" equal to or greater than that of the Existing Subordinated Loan to be repaid."
- Overview of the New Subordinated Loan
The terms and conditions of the New Subordinated Loan are as follows.
Amount to be borrowed 130 billion Japanese yen Use of the Loan Applied to the early repayment of the Existing Subordinated Loan Signed date of the Loan Agreement September 29, 2016 Drawdown date October 5, 2016 Due date October 5, 2076
The Company may, however, make an early repayment of all or part of the principal on any interest payment date on or after October 5, 2021 if the Company meets the certain requirements.
Replacement restrictions When making an early repayment of the New Subordinated Loan, the Company intends to raise the funds, within the 12-month period prior to the date on which it will make that early repayment, by issuance of new shares or subordinated loans, etc. that have been approved by the ratings institution as having equity credit attributes, so that the amount of the attributes is equal to or greater than that of the Existing Subordinated Loan to be repaid; provided, however, if both of the following requirements are met at the early repayment, the foregoing financing may not be made:
- (a)The Company's total amount of shareholders' equity calculated based on the latest consolidated balance sheet disclosed as of the notification of early repayment, either at the end of the preceding fiscal year or at the end of the second quarter, exceeds 860 billion Japanese yen. The Company's total amount of shareholders' equity is defined as total equity attributable to owners of the parent, minus other components of equity; and
- (b)The Company's net D/E ratio calculated based on the latest consolidated balance sheet disclosed as of the notification of early repayment, either at the end of the preceding fiscal year or at the end of the second quarter, is below 0.6. Net D/E ratio is defined as net debt (corporate bond and borrowings, plus leases, minus cash and cash equivalents) divided by total equity attributable to owners of the parent.
Interest payment The Company may, at its discretion, defer all or some of the payment of interest on the New Subordinated Loan. Subordination The New Subordinated Loan is subordinated in liquidation proceedings, bankruptcy proceedings, reorganization proceedings and rehabilitation proceedings. Prohibition of changes to the disadvantage of senior creditors The terms and conditions of the agreement on the New Subordinated Loan shall not be changed in any respect whatsoever to the disadvantage of senior creditors of the Company.
No agreement on such change should affect any person in any way whatsoever, except for the claims on the Company arising from the New Subordinated Loan or the other equivalent claims on the Company based upon the conditions equal in substance to the subordination stipulated in the above subordination.
Equity credit attributes of the New Subordinated Loan evaluated by a Ratings Institution(expected) Class 3 / 50% (Rating and Investment Information, Inc.) Investors (lenders) participating in the New Subordinated Loan Sumitomo Mitsui Banking Corporation
Sumitomo Mitsui Trust Bank, Limited
The Bank of Tokyo-Mitsubishi UFJ, Ltd.
Mizuho Bank, Ltd.
Development Bank of Japan Inc.
- Details of the early repayment of the Existing Subordinated Loan
Total amount of early repayment 130 billion Japanese yen Early repayment date October 5, 2016 Basis of early repayment Pursuant to the early repayment clause of the Existing Subordinated Loan
Cautionary Statement with Respect to Forward-Looking StatementsThis material contains forward-looking statements regarding estimations, forecasts, targets and plans in relation to the results of operations, financial conditions and other overall management of the NEC Group (the “forward-looking statements”). The forward-looking statements are made based on information currently available to NEC and certain assumptions considered reasonable as of the date of this material. These determinations and assumptions are inherently subjective and uncertain. These forward-looking statements are not guarantees of future performance, and actual operating results may differ substantially due to a number of factors.
The factors that may influence the operating results include, but are not limited to, the following:
- Effects of economic conditions, volatility in the markets generally, and fluctuations in foreign currency exchange and interest rate
- Trends and factors beyond the NEC Group's control and fluctuations in financial conditions and profits of the NEC Group that are caused by external factors
- Risks arising from acquisitions, business combinations and reorganizations, including the possibility that the expected benefits cannot be realized or that the transactions may result in unanticipated adverse consequences
- Developments in the NEC Group's alliances with strategic partners
- Effects of expanding the NEC Group's global business
- Risk that the NEC Group may fail to keep pace with rapid technological developments and changes in customer preferences
- Risk that the NEC Group may lose sales due to problems with the production process or due to its failure to adapt to demand fluctuations
- Defects in products and services
- Shortcomings in material procurement and increases in delivery cost
- Acquisition and protection of intellectual property rights necessary for the operation of business
- Risk that intellectual property licenses owned by third parties cannot be obtained and/or are discontinued
- Risk that the NEC Group may be exposed to unfavorable pricing environment due to intensified competition
- Risk that a major customer changes investment targets, reduces capital investment and/or reduces the value of transactions with the NEC Group
- Risk that the NEC Group may be unable to provide or facilitate payment arrangements (such as vendor financing) to its customers on terms acceptable to them or at all, or risk that the NEC Group's customers are unable to make payments on time, due to the customers' financial difficulties or otherwise
- Risk that the NEC Group may experience a substantial loss of, or an inability to attract, talented personnel
- Risk that the NEC Group's ability to access the commercial paper market or other debt markets are adversely affected due to a downgrade in its credit rating
- Risk that the NEC Group may incur large costs and/or liabilities in relation to internal control, legal proceedings, laws and governmental policies, environmental laws and regulations, tax practice, information management, and human rights and working environment
- Consequences of natural and fire disasters
- Changes in methods, estimates and judgments that the NEC Group uses in applying its accounting policies
- Risk that the NEC Group may incur liabilities and losses in relation to its retirement benefit obligations
The forward-looking statements contained in this material are based on information that NEC possesses as of the date hereof. New risks and uncertainties come up from time to time, and it is impossible for NEC to predict these events or how they may affect the NEC Group. NEC does not intend to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
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