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TOKYO (Reuters) - Sharp Corp (6753.T) shares fell almost 13 percent and ratings agency Standard & Poor's downgraded the company's debt to junk, underscoring growing concerns about the ability of the loss-making firm to pay its debts and revive its business.
The stock suffered its sharpest decline in almost a month on Friday, after the abrupt departure of Hon Hai Precision Industry Co Ltd's (2317.TW) chairman from Japan fuelled uncertainty over a tie-up expected to help secure the long-term viability of the Japanese LCD TV panel maker.
Sharp, which also makes screens for Apple Inc's (AAPL.O) iPad and iPhone, has been hammered by aggressive competition and sluggish TV demand. At the same time, it is scrambling for money to refinance billions of dollars of debts maturing in the near term.
"Sharp's liquidity position is weakening, in Standard & Poor's view. Internal cash flow remains weak, and financial market conditions for the company have deteriorated," the agency said in a statement on Friday.
"Our current ratings incorporate an assumption that Sharp will reach an agreement" with Hon Hai, it said.
Standard & Poor's said it was keeping Sharp's reduced BB+ debt rating on negative watch for a possible further downgrade.
The century-old firm is discussing a partnership with Hon Hai that would give the Taiwanese company a 9.9 percent stake and more muscle to cut costs.
Sharp's chief financial officer told reporters on Friday after the share slump that his company is eager to conclude a deal with Hon Hai as soon as possible, when asked if the agreement could be reached by the end of September.
"We want to reach agreement quickly," Tetsuo Onishi said at a press briefing in Osaka. A partnership pact could also stretch to Sharp's small LCD display business as well as mobile phones and TV screens, Onishi added.
Hon Hai Chairman Terry Gou earlier told Taiwan's United Evening News that there was no timetable for a deal with Sharp, but he sees a "good outcome" for their talks.
He said it was not a matter of how much money Hon Hai spent but how Sharp could turn itself around.
Gou also told the paper he had skipped a news conference on Thursday at the Japanese LCD plant that his firm and Sharp jointly own, and went home, because he had "lost faith" in the Taiwanese and Japanese media over their negative reporting of the deal.
Sharp, which said his departure had nothing to do with their partnership talks, nonetheless had wanted to complete an agreement this week, Onishi said.
"It seems the talks between Terry Gou and Sharp's management didn't yield good results. Any agreement would probably have to wait until year-end," said Simon Liu, vice president at Taiwan firm Yuanta Financial's fund unit, which owns Hon Hai shares.
The Taiwanese company had agreed to pay 67 billion yen ($854 million), or 550 yen a share, for 9.9 percent of Sharp in March, but reopened talks in August to seek a lower price after the LCD TV pioneer's stock slumped below 200 yen as mounting losses put a question mark over its future.
Gou has said that whether he takes a stake in Sharp, which takes its name from the ever-sharp mechanical pencil it invented a century ago, will depend on whether the Japanese firm will take his advice on how to restore profits.
An example of how cooperation might work is underway at the Sakai plant Gou visited on Thursday.
The plant makes credit-card thin substrates of liquid crystal sandwiched between sheets of glass wider and longer than a king-sized bed that can be cut into eight 60-inch TV screens with little waste.
The factory offers Hon Hai a margin-boosting edge as the market for bigger TVs expands, while tapping into Hon Hai's procurement muscle and know-how in cost control will promise Sharp an advantage in the market as it battles South Korea's Samsung (005930.KS) and LG Electronics (066570.KS).
But dealing yet another blow to the outlook for Sharp, the company's production of screens for Apple's latest iPhone is behind schedule, a source close to the matter told Reuters on Friday.
Sharp has forecast an operating loss of 100 billion yen ($1.27 billion) for the current business year.
It also needs to refinance 360 billion yen of short-term commercial paper and will need a further 200 billion yen in September next year to cover a maturing convertible bond.
The S&P downgrade means some fund managers who can only invest in high-grade corporate debt may have to cut their Sharp holdings, although Fitch Ratings still ranks the firm at BBB-, the lowest rung for investment-grade bonds.
Moody's Investors Service does not have a rating for Sharp.
Sharp's shares closed 12.8 percent lower on Friday, their biggest one-day percentage fall since August 3.
Short selling in Sharp is on the rise, indicating greater investor pessimism.
According to data provider Markit, 91.93 percent of the stock that is available to be borrowed had been out on loan as of August 29, up from a near three-week low of 87.63 percent on August 27. ($1 = 78.5500 Japanese yen)
Reporting by Tim Kelly, Sophie Knight and Dominic Lau in TOKYO, Reiji Murai in OSAKA and Faith Hung and Jonathan Standing in TAIPEI; Writing by Linda Sieg and Ryan Woo; Editing by Daniel Magnowski