RPT-Fitch Revises NSSMC's Outlook to Stable; Withdraws Ratings
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Aug 28 (Reuters) - (The following statement was released by the rating agency)
Fitch Ratings has revised Japan-based Nippon Steel & Sumitomo Metal Corporation's (NSSMC) Outlook to Stable from Negative.
Its Long-Term Foreign and Local Currency Issuer Default Ratings (IDR) and senior unsecured rating have been affirmed at 'BBB'. Its Short-Term Foreign and Local Currency IDRs have also been affirmed at 'F3'. Fitch has simultaneously withdrawn all ratings.
The Outlook has been revised to Stable from Negative, reflecting an improved operational outlook and credit profile. The ratings have been withdrawn as they are no longer considered by Fitch to be relevant to the agency's coverage. Fitch will no longer provide rating or analytical coverage of this issuer.
KEY RATING DRIVERS
Improvement in operations: NSSMC has been helped by a soft yen even as global steel industry fundamentals remain weak. As a result domestic demand for steel from industries, such as autos, has been more robust. Fitch expects ongoing negotiations with customers to yield increases in steel prices, which should further boost profitability from H2FY14 (financial year to March 2014) onwards.
Although the weak yen has yet to translate into export volume increase due to the weak global market, Fitch believes the company's profitability should get a further boost from export margin improvement, which should also offset the negative impact of higher yen-denominated raw material costs.
Reduced capex, positive FCF: Fitch expects the company to revert back to positive free cash flow (FCF) in FY14 with the improvement in operations and reduced capex. As a result, adjusted net debt to EBITDAR ratio is expected to fall below 4.0x in FY14 (FY13: 7.9x) and improve further thereafter.
Cautious global industry outlook: The ratings remain constrained by weak global industry fundamentals especially with a softer Chinese economic environment and over-supply issues. Raw material costs, especially coking coal prices, have corrected considerably from 2011 levels to reflect weak steel demand, but metal margins have narrowed, putting pressure on steel makers' profitability. YTD Chinese steel prices have remained weak due to high inventory levels but Fitch cautiously expects prices to show modest recovery from H213 onwards, as steelmakers adjust inventory levels and cut production.
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