(The following statement was released by the rating agency)
Dec 21 - Fitch Ratings has affirmed Nissan Motor Co., Ltd.'s
(Nissan) Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs) and
senior unsecured debt rating at 'BBB'. The Outlook is Stable. Fitch has also
affirmed the company's Short-Term Foreign and Local Currency IDRs at 'F3'.
Nissan's ratings and Stable Outlook reflect expectations of a modest growth
outlook in global automobile demand in 2013, driven by continued growth in the
US and emerging markets, offsetting a likely further decline in Europe and sales
pullback in Japan. Fitch also expects Nissan's credit metrics to remain well
within the agency's guideline for a 'BBB' rating, despite short term negative
impact of a decline in Chinese sales stemming from Sino-Japanese tensions and
Nissan continues to be exposed to FX fluctuations, especially in JPY/USD
movements. However, it has made consistent effort to reduce its FX exposure in
recent years and Fitch believes those efforts will likely start bearing fruit in
the next two to three- years. On the one hand, it is currently expanding
capacities in key growth markets to increase local production and on the other
hand, it is also increasing the sourcing of components in its Japanese
production base from countries with more competitive pricing to reduce Yen cost
Nissan's sales have been affected by the recent Sino-Japanese tensions as around
a quarter of its retail sales volume are derived from China. Nissan's Sep-Oct
retail sales contracted sharply by 38% year on year (yoy) and as of November,
production was still down nearly 50% yoy given ongoing inventory adjustments.
However, the decline in retail sales narrowed to 20% yoy in November and
showroom traffic is now almost back to last year's levels. As such, Fitch
believes sales will gradually rebound in coming months unless there are further
escalations of the territorial dispute.
Fitch expects credit metrics to deteriorate slightly in the financial year
ending March 2013 (FY13) as a result of the impact of the Chinese sales decline
and higher capex. However, the agency expects credit metrics such as net
leverage ratio (adjusted net debt to EBITDAR) to remain below 1.0x and to
improve from FY14 onwards.
Nissan's major shareholder and alliance partner by cross shareholding Renault SA
is currently rated 'BB+'/Stable Outlook. The strategic, operational and
management linkages between the two entities could become stronger as both
automakers are trying to obtain higher synergies from the alliance given the
difficult industry environment.
However, in the agency's view, factors such as the scrapping of Nissan's
dividend during the economic crisis indicate a relatively low likelihood of cash
flows or assets at Nissan being channelled upstream to support Renault's credit
profile. This, in turn, indicates that the impact of Renault's credit profile on
Nissan's would not be as significant as the linkage analysis may otherwise
suggest; this leaves Fitch comfortable with up to a two-notch rating
differential between the two entities.
What Could Trigger A Rating Action?
Negative: Future developments that may, individually or collectively, lead to
negative rating action include-
-Substantial deterioration in global auto demand
-Sustained negative free cash flow
-Adjusted net debt to operating EBITDAR to remain above 1.0x on a sustained
-Downgrade in Renault's rating.
Positive: Future developments that may, individually or collectively, lead to
positive rating action include--Continued improvement in business profile and
market share gains in major markets
-Adjusted net debt to operating EBITDAR to stay close to net cash on a sustained
basis and double digit EBITDAR margins.
-Upgrade in Renault's ratings