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Fitch cuts Sony, Panasonic ratings to junk

Nov 22 2012 10:09 Reuters

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Tokyo - Ratings agency Fitch said on Thursday it was cutting the debt ratings of consumer electronics makers Sony and Panasonic to junk status, citing weakness in their business.

The downgrades deal a further blow to the floundering Japanese tech giants which have been facing weak demand and fierce competition from Apple and Samsung Electronics.

A strong yen and bumps in China, where growth has slowed and Japanese goods have been targeted in sometimes violent protests recently, have also weighed on their earnings.

The credit rating agency on Thursday downgraded Sony by three notches to BB-minus from BBB minus, saying meaningful recovery will be slow.

"Fitch believes that continuing weakness in the home entertainment and sound and mobile products and communications segments will offset the relatively stable music and pictures segments and improvement in the devices segment which makes semiconductors and components," it said in statement.

The downgrade sent Sony's five-year credit default swaps (CDS), insurance-like contracts against debt default or restructuring, 5 basis points wider to 382.5/402.5 basis points.

Panasonic's CDS for the same maturity were quoted at 295/315 basis points, 15 basis points wider than in Thursday morning Asian trade.

In a separate statement, Fitch cut Panasonic to BB from BBB-minus, a two-notch downgrade, citing weakened competitiveness in its TVs and display panels as well as weak cash generation from its operations.

Sony shares were down 0.3% in Frankfurt in low volume on Thursday. The shares ended 1.8% higher at ¥834 in Tokyo on Thursday before the Fitch announcement, trading not too far from their 32-year closing low of ¥793 hit on November 15. Sony stock is down 40% so far this year.  

Panasonic shares were down 0.6% in Frankfurt, also in low volume. The stock inched up 0.7% to close at ¥407 in Tokyo trading, near its 34-year closing low of ¥385 reached on November 13.

Last month, Panasonic cut its forecast and warned it will lose close to $10bn in the year to March, as it writes off billions of yen in tax-deferred assets and goodwill related to its mobile phone, solar panel and small lithium battery businesses.

Ahead of its earnings revision, Panasonic won $7.6bn in loan commitments in October from banks including Sumitomo Mitsui Financial Group and Mitsubishi UFJ Financial Group, a funding backstop it says will help it avoid having to seek capital from credit markets.

Rival Sony made a small operating profit in the July-September quarter, helped by the sale of a non-core chemicals business, and kept its forecast for a full-year profit of $1.63bn.

But the two companies, along with Sharp, racked up combined losses of $20bn last year, leading them to have to axe jobs, sell assets and close facilities.

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