September 25, 2012 / 7:42 AM / 5 years ago

UPDATE 1-Sony set for $642 mln investment in Olympus -sources

* Sony will gain a seat on Olympus board -sources

* Sony and Olympus to establish joint medical equipment unit -sources

* S&P downgrades Sony debt rating to BBB on weak consumer electronics (Adds detail of S&P downgrade in paragraphs 4-5)

By Reiji Murai and Maki Shiraki

TOKYO, Sept 25 (Reuters) - Sony Corp will likely approve a plan this week to invest 50 billion yen ($642 million) in cash-strapped Olympus Corp, becoming its biggest shareholder with around a 10 percent stake, three sources familiar with the deal told Reuters.

Sony will set up a joint business with Olympus to develop new medical equipment, and next year will send an executive to join its board of directors, the sources said on condition they not be identified.

Sony wants to nurture new businesses, including medical equipment, to increase revenue as it draws back from loss-making televisions.

Persistent weakness in its consumer electronics prompted Standard & Poor’s to cut Sony’s long-term debt rating one notch on Tuesday to BBB, the second-lowest investment grade. S&P added that it would lower its rating further unless the inventor of personal music players improved its financial standing.

The cut will make it more expensive for Sony to borrow money to finance investment and acquisitions.

Olympus, seeking to retain a high degree of independence, may favor a capital injection from Sony rather than offers of closer business ties from rivals such as medical device maker Terumo Corp and camera maker Fujifilm Holdings Corp .

Rocked by an accounting scandal over falsified financial statements and hidden investment losses, camera and endoscope maker Olympus needs cash to fix its finances. In the year to March 31, it booked a net loss of 49 billion yen.

In June, its ratio of shareholders’ equity to total assets fell to 2.2 percent, from 4.6 percent in March. The figure is a barometer of a company’s liquidity, with the 20 percent level regarded as indicative of financial stability.

An allotment of new shares to Sony in October should raise the ratio to 10 percent, the sources said. ($1 = 77.8750 Japanese yen) (Additional reporting by Taiga Uranaka; Writing by Tim Kelly; Editing by Michael Watson and Edmund Klamann)

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