Shares of Japan's Sharp Corp fell and Fitch Ratings downgraded its debt to junk status on Friday, a day after it warned of a $5.6 billion net loss for the year and said it might not be able to survive on its own.
Sharp's stock fell 2.4 percent to 165 yen and has lost three-quarters of its value since the start of the year, the worst performer among 2,200 Asian large and midcap stocks, Thomson Reuters data shows.
Shares of rival Sony Corp rose, however, and Panasonic Corp's steadied after a slide to their lowest in more than 30 years, as investors look for signs that Japan's sprawling tech firms will finally take the tough steps needed to grapple with more flexible and better-funded foreign rivals.
"Sharp and Panasonic look miserable," said Yasuo Sakuma, portfolio manager at Bayview Asset Management.
"Investors are hesitant to buy them even though their share prices look relatively cheap. Nobody can say all the bad news has been discounted."
Fitch Ratings downgraded Sharp's credit rating by six notches to B-minus, following cuts by Moody's Investors Service and Standard & Poor's late last summer. Fitch said it may cut the rating further, citing looming debt maturities, its limited access to capital markets and the struggle it faces turning its business around.
Sharp's shares remained above a more than three-decade low of 142 yen hit last month, buoyed in part by hopes it can forge an alliance with a high-tech company interested in its display technology, but traders also noted it had become very expensive and difficult for short-sellers to borrow more shares to sell.
The company, whose displays are used in Apple Inc's iPads and iPhones, foundered as the strong yen boosted the costs of manufacturing in Japan and it struggled to compete with foreign rivals such as Samsung Electronics Co. It was forced in September to seek a bailout from its banks.
SHUNNED BY DEBT MARKETS
Effectively shunned by the debt capital markets because of its massive losses and falling market share, Sharp received a guarantee for 360 billion yen ($4.5 billion) in loans from its two main lenders, Bank of Tokyo-Mitsubishi UFJ and Mizuho Corporate Bank.
The loans are enough to sustain the company through its next financial year to March 2014, which includes the redemption of 200 billion yen in convertible bonds next September, Sharp Chief Financial Officer Tetsuo Onishi told a briefing on Thursday.
Worries about its cash liquidity have mounted in the credit markets, where the cost of insuring Sharp's debt has jumped more than 30-fold since the start of the year and is now more than 10 times the cost for Sony and Panasonic.
Fears that Sharp may default have also led CDS traders to demand fees upfront, a practice only used in the past for debt with very high yields or for very risky firms. Moreover, that fee has skyrocketed to 67 percent, from 20 percent in July.
Osaka-based Sharp, which also makes solar panels, nearly doubled its forecast full-year net loss to 450 billion yen after booking a $1.1 billion restructuring charge in July-September. The agreement with its banks requires it to return to the black on an operating basis in the second half of the year to March.
"Sharp expects major earnings improvement in the second half as it posted greater inventory and capital write-downs in the first half than planned, and plans to cut personnel and other fixed costs," Goldman Sachs said in a research note.
"However, sales guidance for small/midsize LCDs and solar cells looks optimistic, and we think second half guidance looks difficult."
The Aquos TV maker has been in talks for months with Taiwan's Hon Hai Precision Industry Co Ltd, which is considering becoming the century-old Japanese firm's biggest shareholder, but said it is looking at other alliances as well.
The company has denied Japanese media reports, however, saying it is in talks on financial tie-ups with U.S. technology companies such as Apple, Intel Corp, Microsoft Corp and Google Inc.
Sony eked out a small quarterly operating profit, helped by the sale of a non-core chemicals business, and kept its forecast for a full-year operating profit of 130 billion yen. Its shares rose 2.1 percent to 934 yen on Friday.
Panasonic Corp started off the latest round of bad news for Japan's big consumer electronics makers on Wednesday, saying it will lose 765 billion yen this business year as it writes down goodwill and assets and plans more restructuring. That would boost Panasonic's cumulative loss over five years to nearly $25 billion.
Panasonic shares dipped 0.7 percent to 411 yen, steadying after a 20 percent tumble on Thursday. Japan's benchmark Nikkei average rose 1.2 percent.
($1 = 80.1400 Japanese yen)
(Additional reporting by Dominic Lau and Taiga Uranaka in Tokyo, Anshuman Daga in Singapore; Editing by Edmund Klamann)