(MENAFN- AFP) Troubled Japanese electronics maker Sharp is in "selective default" ratings agency S&P said Tuesday, the latest blow to the one-time giant as it struggles to repair a tattered balance sheet.
The move comes after Sharp announced that it was issuing preferred securities to its main lenders, instead of repaying loans that were due.
"We regard this transaction as a de facto debt-for-equity swap, which we define as 'SD' (selective default). Therefore, we lowered our issuer credit rating on Sharp to 'SD'," the agency said in a release.
"We also revised the CreditWatch implications on our ratings on Sharp's long-term debt and commercial paper (CP) program to positive from negative."
However, S&P said, the classification was expected to be only temporary.
"Once a debt-for-equity swap that we define as a default is completed, we review the company's post-swap credit profile and raise the issuer credit rating from 'SD' as swiftly as possible, in accordance with our criteria.
"Therefore, we expect to assess Sharp's credit quality and upgrade the company from 'SD' as early as tomorrow."
The once-mighty Sharp, like rivals Sony and Panasonic, has been working to move past years of gaping deficits, partly caused by steep losses in its television unit, which has been hammered by competition from lower-cost rivals particularly in South Korea and Taiwan.
In May it announced it was cutting 10 percent of its 49,000 positions worldwide as part of a turnaround plan intended to keep it afloat after posting a bigger-than-expected $1.86 billion annual loss.
The embattled Aquos-brand maker said it would sell the building that houses its Osaka headquarters to raise cash, roll out unspecified pay cuts, and launch a drastic capital reduction plan to wipe away huge losses.
Sharp -- a major Apple supplier and leader in screens for smartphones and tablets -- said at the time it would issue 200 billion yen worth of new shares with no voting rights to Mizuho Bank and Bank of Tokyo-Mitsubishi UF.
Tuesday's action by S&P is in response to that move.
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