TEXT-S&P:Outlook on Asahi Kasei Mortgage revised to negative
(The following statement was released by the rating agency)
Aug 31 -
-- Asahi Kasei Mortgage's ultimate parent, Asahi Kasei Corp., is likely to face earnings pressure in its chemicals business if prices in the Asian market remain weak. In turn, this would prolong a delay in the improvement in the parent's financial standing, which has deteriorated due to an increase in debt-financed investment.
-- We revised our outlook on the 'A' long-term corporate credit rating on Asahi Kasei Mortgage to negative from stable.
-- We affirmed the long-term corporate credit rating on Asahi Kasei Mortgage, reflecting our view that Asahi Kasei Corp.'s strengthening earnings from its nonchemicals businesses may underpin earnings and that its financial standing is likely to improve over the next 12 months to levels that would be sufficient for Asahi Kasei Mortgage to maintain the current rating.
On Aug. 31, 2012, Standard & Poor's Ratings Services revised to negative from stable the outlook on its 'A' long-term corporate credit rating on Asahi Kasei Mortgage Corp. The outlook revision reflects our view that there is at least a one-in-three likelihood that the ultimate parent, Asahi Kasei Corp. (not rated), will face pressure on its earnings in its chemicals business if prices in the Asian market remain weak. In turn, this would prolong a delay in improving the group's financial standing, which has deteriorated due to an increase in debt-financed investment. We affirmed the 'A' long-term corporate credit rating on Asahi Kasei Mortgage because we believe that Asahi Kasei Corp.'s strengthening earnings from its nonchemicals businesses may underpin earnings and that its financial standing is likely to improve over the next 12 months to levels that would be sufficient for Asahi Kasei Mortgage to maintain the current rating.
Standard & Poor's treats Asahi Kasei Mortgage as the captive finance division of the Asahi Kasei group, and the rating on Asahi Kasei Mortgage reflects the credit quality of the entire Asahi Kasei group. At this point, we have not seen any material changes to Asahi Kasei Mortgage's businesses or assets. The Asahi Kasei group is likely to stabilize its business by diversifying operations and strengthening its nonchemicals businesses to underpin earnings. For example, the group is strengthening earnings from its health care business through its acquisition of U.S. health care equipment maker ZOLL Medical Corp., which it completed in April 2012. In addition, it has launched a new drug with potential to support earnings growth. The group has also improved the profitability of its housing business in recent years. However, operating profits from Asahi Kasei Corp.'s core chemicals business have plummeted amid a fall in demand in Asian markets. We see a potential downside pressure for margins in the chemicals business due to the weak global economy. Also, Asahi Kasei Corp. relied largely on debt financing to acquire ZOLL Medical. Nevertheless, due to the strengthening nonchemical businesses, we expect Asahi Kasei Corp.'s profits and cash flows to gradually recover, and thus its financial standing to recover over the next 12 months to levels that would be sufficient for Asahi Kasei Mortgage to maintain the current rating. However, if Asian markets follow our downside scenario-which includes weak demand and prices--we see a one-in-three likelihood that Asahi Kasei Corp. will need more time to recover its financial standing.
We assess Asahi Kasei Mortgage's liquidity as "adequate," according to our criteria, reflecting the liquidity of both the company and its ultimate parent. Asahi Kasei Mortgage securitizes its loan claims to meet its long-term financing needs, and it also relies on Asahi Kasei Homes Corp. (not rated), which is a wholly owned subsidiary of Asahi Kasei Corp. Despite limited sources, Asahi Kasei Mortgage has sufficient liquidity for its funding needs. In addition, the ultimate parent, Asahi Kasei Corp., also maintains adequate liquidity on a consolidated basis.
The outlook is negative. It is our view that there is at least a one-in-three likelihood that a recovery in earnings in Asahi Kasei Corp.'s chemicals business will be delayed, which will, in turn, slow recovery of its financial standing. We may consider lowering the rating on Asahi Kasei Mortgage if we reduce our assessment of the group's credit quality owing to a slow recovery in profitability of the group's chemicals business, which would prolong a delay in improvement in the group's financial performance. We may lower the rating if we see Asahi Kasei Corp.'s funds from operations (FFO, after excluding working capital) to debt as unlikely to recover to 40% in the next 12 months. We may also downgrade the company if Asahi Kasei Mortgage's asset quality deteriorates considerably because of an increase in loans in arrears or if the company's position as the group's captive finance division changes. Conversely, we may consider revising the outlook back to stable if we see clear prospects for the group to swiftly improve its financial standing, including FFO to debt of over 45% on a sustained basis.
Related Criteria And Research
Principles Of Credit Ratings, Feb. 16, 2011
2008 Corporate Criteria: Analytical Methodology, April 15, 2008
Assumptions: Analytical Adjustments For Captive Finance Operations, June 27, 2008
Outlook Action; Ratings Affirmed
Asahi Kasei Mortgage Corp.
Corporate Credit Rating A/Negative/-- A/Stable/--
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