Plans by Japanese electronics conglomerate Sharp to shrink its capital base will only buy the company time, but its long-term survival remains in doubt, analysts told CNBC.
"It's a desperate attempt to pre-empt insolvency," said BNP Paribas chief credit analyst Mana Nakazoran by phone. The reported measures "will buy the company some time, but I can't say if Sharp will still exist in five years' time."
The Osaka-based maker of LCD displays, which has accumulated losses of nearly 920 billion yen ($7.68 billion) over the past three years on poor sales and stiff competition, has also accumulated a massive debt burden on the way.
The company is reportedly facing a loss of around 200 billion yen the fiscal year that ended March 2015 as a result of restructuring. Its debt meanwhile stood at nearly 2 trillion yen, according its annual report in the previous year.
The company and its creditor banks now appear to have resorted to a radical solution: shrink the balance sheet by hacking the firm's capital base by 99.99 percent, from over 120 billion yen to 100 million, according to Japanese media reports, or levels usually associated with small and medium sized businesses.
The move is believed to allow the company to avoid insolvency and rebuild its capital base from scratch.
Sharp conceded in a statement on Monday morning that it is "considering various possibilities concerning our capital policy including the issuance of preferred shares and the decrease in capital, but no specific decisions are made at this time."
Sharp's share price tanked 27 percent at one point on Monday morning trade.