Sharp Corp., the Japanese electronics maker renegotiating a stake sale to Foxconn Technology Group, fell in Tokyo trading after Moody’s Investors Service lowered its short-term credit ratings and the company put up properties as debt collateral.
Sharp fell as much as 7.2 percent to 194 yen and traded at 196 yen as of 9:57 a.m., extending its decline this year to 71 percent. The shares are the biggest percentage loser this year on the MSCI Asia-Pacific Index.
Moody’s cut Sharp’s short-term ratings to Not-Prime from Prime-3, the ratings company said in a statement yesterday, citing a high level of short-term debt and weak operating performance. The electronics maker, seeking to raise cash after widening its loss forecast eightfold last month, mortgaged properties including its Osaka headquarters and a plant in Japan’s Mie prefecture, it said today.
“Sharp’s liquidity profile is under pressure,” Moody’s said in yesterday’s statement. The new debt rating “also considers its intense competitive pressures and the weak market conditions for some of the company’s key products.”
The electronics maker put up properties as collateral as it sought as much as 150 billion yen ($1.9 billion) in loans from Japan’s Mizuho Corporate Bank Ltd. and Bank of Tokyo-Mitsubishi UFJ Ltd., Miyuki Nakayama, a spokeswoman for Sharp, said by phone today. The Asahi newspaper reported the news earlier.
Standard & Poor’s lowered its long-term rating on Sharp last week by two levels to BB+, the highest non-investment grade, saying it suffers from weak cash flow and deteriorating market conditions. It kept Sharp on a negative ratings watch.
S&P also cut Sharp’s short-term rating to B, the highest non-investment grade.
Sharp, which widened the full-year loss projection to 250 billion yen, is seeking to raise cash and cut costs as 706 billion yen of its bonds, commercial paper and borrowings mature within a year. Foxconn’s billionaire founder Terry Gou ended a visit to Japan last week without announcing the conclusion of a deal to invest in Sharp, which is cutting 5,000 jobs after a stronger Japanese currency and slumping global TV demand led to a record loss last fiscal year.
Foxconn Group, through its two Taipei-listed units, Hon Hai Precision Industry Co., the world’s largest contract manufacturer of electronics, and Foxconn Technology Co., a maker of computer cases, agreed in March to buy 9.9 percent of Sharp for 67 billion yen in a sale of new shares.
Sharp has tumbled since Foxconn proposed paying 550 yen a share in March, prompting the renegotiations. Foxconn Group plans to proceed with its investment “at the most appropriate time and most appropriate price” because it’s looking at Sharp’s long-term prospects, Gou said Aug. 5.
Hon Hai, maker of Apple Inc.’s iPad and iPhone, is Sharp’s largest supplier, according to data compiled by Bloomberg.
Sharp said last month it may sell stock holdings if Foxconn invests less money than it said in March. Sharp cut its stake in Pioneer Corp. to 9.2 percent from 14.28 percent and pledged 15 million Pioneer shares each to Mizuho Corporate Bank Ltd. and Bank of Tokyo-Mitsubishi UFJ Ltd. as collateral, the panel maker said in a Sept. 3 filing to Japan’s Finance Ministry.
“Sharp is taking action to bolster its financial performance and generate cash,” Moody’s said in its statement. “However, these measures will take time to execute and cash outlays for the restructuring measures will add to its near-term liquidity needs.”
A near-term upgrade of Sharp’s rating is unlikely, Moody’s said, “since any successful recovery effort will take many quarters to execute.”