S&P downgrades Nissan’s credit rating to junk status

S&P downgrades Nissan’s credit rating to junk status

Nissan’s credit rating was downgraded to junk by S&P Global Ratings, the latest blow to a carmaker that has struggled to increase profitability in the years following the arrest of former chairman Carlos Ghosn and the industry’s pivot toward electrification. Used to be.

The Japanese automaker’s credit rating was downgraded a notch to BB+ by S&P, which said a strong recovery in profits and sales was “unlikely” and cited continued supply chain turmoil and higher costs in the industry.

Nissan has recovered from two years of losses and is still targeting an operating profit of ¥360 billion ($2.7 billion) for the fiscal year ending this month. A weaker yen in late 2022 also helped boost income brought home, which more than made up for the output shortfall, but that benefit is waning as the currency strengthens.

“The company’s performance has been sluggish for more than three years,” S&P said in a statement. “We now expect its earnings to be weaker than previously thought, given the prospect of another difficult year in 2023.”

S&P said Nissan’s profits will continue to lag those of its peers for the next one to two years. The agency said it expected supply chain issues to persist, delaying any recovery in sales in the US and Europe and putting pressure on companies to reduce prices.

The junk rating means that Nissan will have to pay a higher price to sell foreign currency bonds overseas. While the Yokohama-based company sold a yen-denominated stability bond in January, it last sold dollar and euro bonds in 2020. The dollar-denominated note maturing in 2027 fell 0.2 cents to 91.1 cents on the dollar on Tuesday. It has lost about ¥3 since the beginning of February.

The outlook for the Japanese carmaker is stable, S&P said, adding that profits are slowly improving and the company is being conservative in its financial planning.

The agency forecast that Nissan would sell 3.6 million to 3.7 million cars in the fiscal year ending March 2024, lower than the 5.4 million units targeted by the company in its long-term business strategy.

S&P also said it would consider raising its rating if Nissan can significantly improve sales and generate cash flow over the next 12 to 18 months. But its rating could be downgraded, the agency said, if free operating cash flow turns negative long-term, or the company’s financial base is hit by large strategic investments, or its market position falls further in North America or China.

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