Credit rating of Sharp cut to junk; Panasonic downgraded too

TOKYO, Japan – Japan’s Sharp was dealt another blow Friday, November 2, as Fitch slashed its credit rating to junk after the embattled electronics giant warned of a massive annual loss, and expressed doubts about its own survival.

The 6-notch downgrade was in response to Osaka-based Sharp saying on Thursday it would post a whopping $5.6 billion yearly loss while admitting for the first time it had doubts about carrying on as a viable company.

Fitch said it slashed its view on the maker of Aquos-brand electronics to a rating of B minus, which means its debt was no longer considered a safe, investment-grade bet.

In August, Standard & Poor’s also cut Sharp’s rating to junk status, underlining the severe situation facing the firm which has warned of thousands of job cuts while shrinking wages for employees — from the factory floor to the executive boardroom — to shore up its bleeding balance sheet.

Fitch’s announcement was the latest piece of bad news for Japan’s once-mighty electronics giants.

The industry has suffered from a laundry list of problems including a high yen, slowing demand in key export markets, fierce overseas competition and strategic mistakes that left their finances in ruins.

“The downgrade reflects growing risks to Sharp’s liquidity position, reinforcing Fitch’s view that the technology company will struggle to turn its business around,” a Fitch statement said Friday.

Sharp’s cash balance was about $2.75 billion at the end of September, well short of the more than $11 billion worth of debt it has coming due within a year, and it may have trouble securing further bank loans, Fitch said.

A capital injection from Taiwan’s Hon Hai Precision, which makes Apple gadgets in China, appears to be in doubt and Sharp has put up real-estate — including its headquarters — as collateral for desperately needed cash.

“Fitch does not foresee any meaningful operational turnaround in the company’s core business over the short- to medium-term due to deterioration in its market position as well as in price competitiveness as a result of a high Japanese yen,” it said.

Sharp voiced similar worries on Thursday, saying it was “in circumstances in which material doubt about its assumed going concern is found”.

Also Friday, S&P downgraded rival Panasonic’s credit rating for the second time in a year, after it warned of a mammoth $9.6 billion annual loss as the firm undergoes its own corporate overhaul.

Panasonic, Sharp and rival Sony have all struggled, particularly in their television business, owing to falling prices and stiff competition from overseas rivals including South Korea’s Samsung Electronics.

The trio have announced massive corporate overhauls that include tens of thousands of job cuts as their shares plunged in value.

Earlier this year, Sharp’s share price dropped to four-decade lows while Sony’s stock tumbled below 1,000 yen for the first time since 1980 and the era of the Walkman.

Since September, a diplomatic row over an East China Sea island chain claimed by Tokyo and Beijing has seen many Chinese consumers boycott Japan-branded exports, also digging into manufacturers’ results. – Agence France-Presse