Fitch cuts Sony, Panasonic debt ratings to "junk" status

TOKYO Thu Nov 22, 2012 5:22am EST

1 of 2. A Sony logo is seen as customers look at Sony digital cameras at an electronics shop in Tokyo, in this May 10, 2012 file photo.

Credit: Reuters/Kim Kyung-Hoon/Files

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TOKYO (Reuters) - Ratings agency Fitch downgraded the debt ratings of Japan's Sony Corp and Panasonic Corp to "junk" status citing weakness in their consumer electronics and TV operations, further diminishing the luster of the once-great Japanese brands.

The cut to below investment grade, the first by a ratings firm, comes as the floundering Japanese tech giants face weak demand and fierce competition from Apple Inc and Samsung Electronics.

A strong yen and bumps in China, where growth has slowed and Japanese goods have been targeted in sometimes violent protests recently, have also weighed on their earnings.

The two companies, along with Sharp Corp, racked up combined losses of $20 billion last year, leading them to axe jobs, sell assets and close facilities.

"Both Sony and Panasonic are struggling to generate operating profits, but each is restructuring and I don't envision the current situation continuing," said Masahi Oda, Chief Investment Officer at Sumitomo Mitsui Trust Bank.

"A collapse of their core business would be a problem, but we are not at the point yet, and to me Fitch looks too negative," Oda added.

Fitch downgraded Sony by three notches to BB-minus from BBB- minus, saying meaningful recovery will be slow. The move came after Sony, the maker of PlayStation game consoles and Vaio laptops, last week announced plans to raise 150 billion yen ($1.82 billion) through the sale of convertible bonds.

"Fitch believes that continuing weakness in the home entertainment and sound and mobile products and communications segments will offset the relatively stable music and pictures segments and improvement in the devices segment which makes semiconductors and components," it said in statement.

In a separate statement, Fitch cut Panasonic to BB from BBB-minus, a two-notch downgrade, citing weakened competitiveness in its TVs and display panels as well as weak cash generation from its operations. It has a negative outlook on both the companies.

The downgrade sent Sony's five-year credit default swaps (CDS), insurance-like contracts against debt default or restructuring, 5 basis points wider to 382.5/402.5 basis points.

Panasonic's CDS for the same maturity were quoted at 295/315 basis points, 15 basis points wider than in Thursday morning Asian trade.

Standard & Poor's rates the two consumer electronics makers at BBB, the second lowest of the investment grade, while Moody's Investors Service has Baa3 on them, the lowest of the high-grade category.

With two of the three major ratings agencies still having the two companies as investment grade, institutional investors won't face too great a pressure to cut their debt holdings in them, analysts said.

SONY SHARES TUMBLE

Sony shares shed 4.4 percent in Frankfurt on Thursday. The shares ended 1.8 percent higher at 834 yen in Tokyo before the Fitch announcement, trading not too far from their 32-year closing low of 793 yen hit on November 15. Sony stock is down 40 percent so far this year.

Panasonic shares were down 0.6 percent in Frankfurt in low volume. The stock inched up 0.7 percent to close at 407 yen in Tokyo trading, near its 34-year closing low of 385 yen reached on November 13.

Last month, Panasonic cut its forecast and warned it will lose close to $10 billion in the year to March, as it writes off billions of yen in tax-deferred assets and goodwill related to its mobile phone, solar panel and small lithium battery businesses.

Ahead of its earnings revision, Panasonic won $7.6 billion in loan commitments in October from banks including Sumitomo Mitsui Financial Group and Mitsubishi UFJ Financial Group, a funding backstop it says will help it avoid having to seek capital from credit markets.

Sony made a small operating profit in the July-September quarter, helped by the sale of a non-core chemicals business, and kept its forecast for a full-year profit of $1.63 billion.

(Additional reporting by Dominic Lau in Tokyo and Umesh Desai in Hong Kong; Editing by Muralikumar Anantharaman)

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Comments (2)
speculatrix wrote:
Sony have coasted for five years or more now. Their TVs used to set the benchmark standard are now very poor value. The playstation Vita, whilst good, was quite late. The Playstation3 hasn’t seen much compelling new content. Their cameras have been respectable but not capturing a huge market share. Their phones, having bought out Ericsson, are respectable but Sony haven’t had the mind share of Samsung, Apple or HTC.

Panasonic have mostly maintained their quality but I imagine margins are very thin. Their Lumix cameras are well regarded but don’t have the same mind share as Canon or Nikon, although they are working hard to change that with recent new models (the G5 and GH3 settings new standards). They’ve faltered in their attempts at mobile phones and abandoned their recent new model. They don’t have the studios or content factories like Sony, which means they live or die by their hardware sales, as they don’t have a “platform” like Apple or Sony.

Nov 22, 2012 3:50pm EST  --  Report as abuse
VonHell wrote:
i remember that some years ago sony used to say with a PS3 no one would need a PC…
PS3 is like a modest PC for gamers today… but what failed was that idea of transform the console in something more… develop a multi platform OS or even integrate the software of the several hardware they have… Vita is more like an old smartphone in terms of hardware… those MP3 players, some looking like smartphones, only sell in Japan…
The japanese dont have superior hardware for quite some time now…

The yen valorized a lot because US QE and deflation is only compensating for that…
without deflation Japan would not be able to stop the cheap imports to come in… come on, one laptop used to cost 50-100% more than in US, 1-1.5 years ago…
What QE revealed was that japanese companies were not globalized in the true sense… not in the same tone than the rest of the world consumers… making things to the japanese taste… depending much of the japanese market…
But lucky them i believe that the debt is owned by japanese banks… like the gov debt… and they are safe for a while…
Printing money like crazy now would only accelerate the exit of medium and small companies and the rich transfering their money out… may increase the profits for a while, but that is all…
When the yen rised from 120 to 80 a dollar, the japanese GDP was 5tri dollars and did not raised as it should… because the economy contracted… i doubt the GDP will stay in 5tri if the yen falls back to 120…

Nov 22, 2012 10:52pm EST  --  Report as abuse
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