Reuters: Financial Services and Real Estate: TEXT-S&P:Tie-up has no immediate effect on rtgs on Sharp

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TEXT-S&P:Tie-up has no immediate effect on rtgs on Sharp Mar 28th 2012, 07:49 Wed Mar 28, 2012 3:49am EDT March 28 - Standard & Poor's Ratings Services said today there is no immediate impact on the ratings on Sharp Corp. (BBB+/Negative/A-2) as a consequence of the company's capital and business tie-up with Taiwan-based Hon Hai Precision Industry Co. Ltd. (A-/Stable/--), a world leader in electronic manufacturing services. The tie-up will improve Sharp's credit quality in the medium term, in our opinion. However, the companies will take time to implement cooperation, and the capital increase does not improve Sharp's financial standing enough to change our assessment of its financial risk profile. As such, the tie-up has no immediate impact on our ratings on Sharp. Sharp will raise about JPY130 billion through a third-party allocation of new shares to the Hon Hai group and the sale of a portion of its stake in a subsidiary to the group. Hon Hai will ultimately purchase up to 50% of the liquid-crystal display (LCD) panels that Sharp manufactures at its main LCD panel plant in Sakai City, Osaka Prefecture. We believe the tie-up will help stabilize the plant's capacity utilization rate, which we had considered a risk factor for the company's credit quality. In addition, Sharp's plan to use Hon Hai's advanced manufacturing system may improve the cost competitiveness of core products such as flat-panel TVs and cell phones. However, the tie-up will likely take time to implement, and the external environment for Sharp's core operations remains severe. Therefore, we are cautious about prospects for an immediate improvement in Sharp's business performance. We anticipate the ratio of Sharp's debt to total capital will remain high at about 56%, even after taking the capital increase into consideration, and this is within our assumptions for the current ratings.

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