Shares in Japan's scandal-ridden Olympus Corp slumped almost 20 percent on Thursday after it corrected its accounts to reveal a dramatically weakened balance sheet, stoking talk that it might need to merge, sell assets or raise fresh capital.

The maker of cameras and medical equipment ironed out its accounts on Wednesday, unwinding a 13-year book-keeping fraud that came to light in October, and showing that its net assets were $1.1 billion less than it had previously disclosed.

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The stock has been overpriced but after the company came out with their numbers yesterday, it was time for shareholders to decide whether to hold on, or dump the shares, said Masayoshi Okamoto, head of dealing at Jujiya Securities, adding that a recent rally was largely due to short-term speculation.

A lot of people are disposing of their shares while the price is still inflated, he added.

Olympus avoided an automatic delisting from the Tokyo Stock Exchange by meeting Wednesday's deadline for producing its overdue second-quarter accounts, giving some initial relief to investors who had feared it might miss the deadline.

But the focus has since turned to the true financial state of the 92-year-old firm and whether the large misstatements it had made in its previous accounts might be sufficiently large to still leave its listing status in doubt. The exchange can decide to delist if it believes the deceit was grave enough.

Investors want to know how the firm will recapitalize and whether there are plans to sell its struggling camera business, and not least of all who will actually run Olympus in future, given its existing board has committed to resign soon.

Ousted Olympus CEO Michael Woodford, who blew the whistle on a $1.7 billion scheme to hide investment losses and is now lobbying shareholders to get his old job back, said on Wednesday he was thinking about options for recapitalizing the company.

He did not give a direct estimate of the sum he felt would be needed but gave an example of how Olympus' strong underlying business would ensure a return on any fresh investment.

For example, if you put $2 billion into the company, the value of the company would probably go up more than $2 billion, he said in an Internet broadcast.

Olympus shares finished were down about 17 percent at 1,090 yen, after hitting a low of 1,056 yen. The stock has lost more than half its value since the scandal erupted in mid-October, when Olympus sacked Woodford who then blew the whistle on the company's dubious book-keeping.

Since then, two top Olympus executives were found to have masterminded the scheme to cook the books. These executives have since resigned.

CAPITAL BASE

Woodford, who is assembling his own team of candidates for a new board, said he favored private equity or a rights issue over a strategic alliance, which would rob Olympus of its independence.

But rights issues, where existing shareholders are entitled to buy additional shares on a pro-rata basis, are rare in Japan.

Olympus President Shuichi Takayama has said he may sell assets or accept a capital tie-up to bolster the capital base.

Olympus has been dogged by rumors of bid interest from rivals, such as fellow endoscope makers Fujifilm and Hoya, or from private equity since the scandal broke.

The Tokyo exchange said after the announcements that it was keeping Olympus on its watchlist for possible delisting.

Some of the restated accounts also came with qualified opinions from auditors, with KPMG AZSA LLC noting it had been unable to confirm all the money flows involved in the fraud.

In addition to the immediate financing concerns over Olympus, the company also faces a possible proxy battle. The existing board wants to choose its own successors before quitting, potentially rivaling Woodford's comeback campaign.

On Thursday, Olympus said it aimed to hold an extraordinary meeting of shareholders in March or April to vote in new directors, though Woodford wants one by February. Neither he nor the existing board has announced its slate of candidates yet.

Japan