* Sony downgraded by 3 notches to BB-minus, Panasonic by 2
* Cites weakness in home entertainment, mobile for Sony, TVs
* Sony shares down 4.4 pct in Frankfurt, Panasonic off 0.6
* Fitch assessment too negative - analyst
By James Topham
TOKYO, Nov 22 Ratings agency Fitch downgraded
the debt ratings of Japan's Sony Corp and Panasonic
Corp to "junk" status citing weakness in their consumer
electronics and TV operations, further diminishing the luster
of the once-great Japanese brands.
The cut to below investment grade, the first by a ratings
firm, comes as the floundering Japanese tech giants face weak
demand and fierce competition from Apple Inc and
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 two companies, along with Sharp Corp, racked up
combined losses of $20 billion last year, leading them to axe
jobs, sell assets and close facilities.
"Both Sony and Panasonic are struggling to generate
operating profits, but each is restructuring and I don't
envision the current situation continuing," said Masahi Oda,
Chief Investment Officer at Sumitomo Mitsui Trust Bank.
"A collapse of their core business would be a problem, but
we are not at the point yet, and to me Fitch looks too
negative," Oda added.
Fitch downgraded Sony by three notches to BB-minus from BBB-
minus, saying meaningful recovery will be slow. The move came
after Sony, the maker of PlayStation game consoles and Vaio
laptops, last week announced plans to raise 150 billion yen
($1.82 billion) through the sale of convertible bonds.
"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.
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. It has a negative outlook
on both the companies.
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
Standard & Poor's rates the two consumer electronics makers
at BBB, the second lowest of the investment grade, while Moody's
Investors Service has Baa3 on them, the lowest of the high-grade
With two of the three major ratings agencies still having
the two companies as investment grade, institutional investors
won't face too great a pressure to cut their debt holdings in
them, analysts said.
SONY SHARES TUMBLE
Sony shares shed 4.4 percent in Frankfurt on
Thursday. The shares ended 1.8 percent higher at 834 yen in
Tokyo before the Fitch announcement, trading not too far from
their 32-year closing low of 793 yen hit on Nov. 15. Sony stock
is down 40 percent so far this year.
Panasonic shares were down 0.6 percent in Frankfurt
in low volume. The stock inched up 0.7 percent to close at 407
yen in Tokyo trading, near its 34-year closing low of 385 yen
reached on Nov. 13.
Last month, Panasonic cut its forecast and warned it will
lose close to $10 billion 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
Ahead of its earnings revision, Panasonic won $7.6 billion
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.
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 $1.63 billion.