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RPT-Fitch Removes RWN on Sharp; Withdraws Ratings

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Thu Aug 1, 2013 3:48am EDT

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Aug 1 (Reuters) - (The following statement was released by the rating agency)

Fitch Ratings has affirmed Japan-based Sharp Corporation's (Sharp) ratings and removed them from Rating Watch Negative (RWN). Fitch has affirmed its Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDRs) and senior unsecured rating at 'B-' with 'RR4' Recovery Rating . The Outlook on the IDRs is Stable. Fitch also affirmed the company's Short-Term Foreign- and Local-Currency IDRs at 'B.' Fitch has simultaneously withdrawn all the ratings.

The ratings have been removed from RWN as liquidity risks have partially abated with creditor support. The ratings have been withdrawn as they are no longer considered by Fitch to be relevant to the agency's coverage. Fitch will no longer provide rating or analytical coverage of this issuer.

Key Rating Drivers

Liquidity risk partially resolved: Sharp's previously precarious liquidity profile has improved as its creditors have provided much needed maturity extension for its syndicated loan and an additional credit facility in June 2013. Fitch believes that major creditors may continue to provide Sharp with the necessary assistance to meet short-term debt obligations given its gradual operational improvement.

Nevertheless, the company has not disclosed that it has liquidity to meet all debt due within a year from March 2013 and therefore the 'B-' rating continues to reflect this liquidity risk.

Slow operational recovery: Fitch forecasts that Sharp will continue to be profitable in the financial year ending March 2014 (FYE14) as its main business, LCD panels, gradually recovers. The company should benefit from increasing demand for its panels from key existing and newly acquired customers, as well as due to a weak JPY. In addition, a lower fixed cost base as a result of its restructuring efforts in FYE13 will help improve margins.

Benefits from strategic alliances: Fitch takes a positive view of the company's strategic tie-ups with global IT companies, including Samsung Electronics Co., Ltd. (A+/Stable), with equity injections. Such deals can help Sharp expand its key customer base and secure stable demand, and also allow the company to develop its core technology. In addition, these factors could restore creditors' confidence in Sharp.

Modest positive FCF likely: For FYE14 Fitch expects Sharp to generate free cash flow (FCF) due to improving cash flow from operations and capex remaining low at around FYE13's JPY61bn level. However, any significant deleveraging is unlikely over the medium term as FCF/sales will be limited in low single digits. Fitch expects funds flow from operations-adjusted leverage to remain over 6x until FYE15, at least.

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