Sharp remains on life support

Sharp bailout deal isn't a surprise: Jefferies

Japanese electronics giant Sharp may be struggling, but the banks will keep the heavily indebted firm on life support, analysts say.

"The banks are on the hook – it goes back to [John Maynard] Keynes' famous saying: if you borrow $100 from the bank, it's your problem; if you borrow $100 million from the bank, it's the bank's problem," Jefferies analyst Atul Goyal told CNBC.

Sharp's financial issues are slightly greater than even a $100 million, however. The company owes around 700 billion yen ($5.9 billion) to its banks, not including other debt, such as bonds, and had a total debt burden of 1.07 trillion yen at the end of fiscal 2014.

And that was before Sharp apparently secured another 200 billion lifeline from its main creditor banks, Mizuho Bank and Bank of Tokyo-Mitsubishi UFJ, in return for promising to scale back its television operations and cutting around 5,000 jobs, according to a Reuters report on Thursday.

Sharp's share price plunged 5.78 percent on Friday, after hitting a four-month high earlier in the session.

"The total amount is not that big for the banks and they don't want to pull the plug because no one wants to see a company with 50,000 employees go bankrupt," BNP Paribas chief credit analyst Mana Nakazora said by phone.

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Mizuho and Mitsubishi, two of Japan's largest banks, had corporate loan books of 43.4 trillion yen and 41 trillion yen, respectively, at the end of fiscal 2013.

Chronic issues

And while the latest lifeline thrown by the banks is expected to keep Sharp afloat, its medium- to long-term survival remains in doubt.

"We are clearly stating it won't go bust," said Jefferies' Goyal. On the other hand, at this this stage the company "does not have any profit drivers" to fall back on, he added.

The problems are abundant: Sharp needs to book valuation losses on excess inventory and impairment charges on some of its liquid crystal display (LCD) plants, radically downsize other businesses such as solar cell panels as well as its head office in Japan, according to an April 16 note by Deutsche Bank analyst Yasuo Nakane.

The company is expecting to suffer annual net losses of 200 billion yen in fiscal 2015 and of 150 billion yen in fiscal 2016, according to a Nikkei report earlier in the week.

Even then, it's not clear whether the company will survive, analysts said.

"I can't say for certain that Sharp will exist in five to ten years – after all, the Japanese electronics industry itself suffers from chronic over-capacity," said BNP Paribas' Nakazora.