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Sharp shares tumble

TOKYO - Sharp Corp shares plummeted on Friday as investor doubts grew about whether Japan’s last major maker of television panels, which is struggling with losses that are bleeding it of cash, will survive the sunset of country’s TV industry.

Revealing an expected operating loss this business year of 100 billion yen and announcing 5,000 job cuts, its first in six decade, the maker of Aquos TVs yesterday said its main banks Mizuho Financial Group and Mitsubishi UFJ Financial Group were ready to back it up. I

Unconvinced, investors responded on Friday by dumping its stock, which slid as much 30 percent to 188 yen. Sharp declined to comment on the share drop.

A net loss of 138 billion yen in the three months ended June 30 took a big chunk out of Sharp’s capital. Shareholders’ equity ratio slumped to 18.7 percent from 23.9 percent at the end of March, falling below the 20 percent threshold generally considered to be healthy.

Sharp slashed its earnings forecast to a full-year operating loss of 100 billion yen from an earlier estimate of a 20 billion yen profit.

“With Sharp’s losses growing to this level, there’s barely going to be any net capital left,” said Makoto Kikuchi, CEO of Myojo Asset Management in Tokyo.

Hammered

Like rival local TV makers Sony Corp and Panasonic Corp, Sharp has been hammered by waning global demand and aggressive overseas competitors led by Samsung Electronics that are grabbing a bigger slice of that shrinking pie.

Combined the three Japanese TV makers this business year expect to sell around 10 million fewer TVs than they did the previous year.

While Sony has movie studios, an insurance business and a gaming unit, and Panasonic builds batteries and automotive devices that can offset TV losses, Sharp has fewer options to retool.

Underlining a looming cash crunch, Sharp’s credit default swap spreads - the cost of insuring its debt against default - have been widening since February, with the 5-year contract currently at an all-time high of 833.3/1000.

In the past month the CDS curve has shown a dramatic inversion, which means it is now more expensive to buy insurance against default for shorter maturities than longer maturities. Such an inversion is usually seen in small, fragile companies.

It’s next financing hurdle is a 200 billion yen convertible bond that matures in September next year. It was issued in October 2006 when the stock was trading above 2,000 yen at a conversion price of 2,531 yen.

“They’ll get support from the banks and get through their immediate funding concerns... but they’re going to have to do some equity financing to strengthen their capital base,” Myojo’s Kikuchi said.