Business Maverick

Business Maverick

Nissan suffers blow with S&P cutting credit to junk

Nissan suffers blow with S&P cutting credit to junk
Illuminated signage displayed outside a Nissan Motors Co dealership at night in Yokohama, Japan, on Tuesday, 7 February 2023. (Photo: Kiyoshi Ota/Bloomberg)

Nissan Motor Co’s credit rating was slashed to junk by S&P Global Ratings, the latest setback for a motoring company that’s struggled to boost profitability in the years following former chairman Carlos Ghosn’s arrest and the industry’s pivot toward electrification.

The Japanese vehicle manufacturer’s credit rating was cut by a notch to BB+ by S&P, which said a strong recovery in profit and sales was “unlikely” and cited persistent supply chain turmoil and high costs in the industry.

While Nissan recovered from two years of losses and is still targeting an operating profit of ¥360 billion (R50.34-billion) for the fiscal year ending this month, there’s a dearth of new models to appeal to car buyers. A weaker yen in late 2022 also helped boost income brought home, which made up for production snags, but that advantage is fading as the currency strengthens.

“Performance at the company has been sluggish for more than three years,” S&P said in a statement. “We now expect its earnings will remain weaker than we previously assumed given the prospect of another difficult year in 2023.”

The downgrade marks another blow for a motoring company that Ghosn sought to turn into a global behemoth by expanding its alliance with Renault SA and Mitsubishi Motors to include other manufacturers. His 2018 arrest on charges of financial misconduct ended those ambitions. Instead, the partnership is reversing course with the announcement last month that Renault will gradually reduce its stake in Nissan, leaving the motoring companies to fend for themselves. 

Nissan’s profitability will continue to lag behind its competitors for the next one to two years, S&P added. The agency said it expects supply chain issues to persist, delaying any recovery in sales across the US and Europe, and pressure companies to lower prices.

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

Japanese bond issuers with junk ratings include SoftBank Group Corp. and Rakuten Group, which have BB+ and BB from S&P, respectively. The cost to insure Nissan Motor’s debt against default jumped after S&P Global Ratings lowered the motoring company’s credit rating to junk.

The outlook for the Japanese motoring company is stable, S&P said, citing that profitability is gradually improving and that the company is being conservative in its financial planning.  

The agency projected Nissan will sell 3.6 million to 3.7 million cars in the fiscal year ending March 2024, falling short of the 5.4 million units targeted by the company in its long-term business strategy. 

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

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