S&P cuts Nissan credit rating to junk status

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Nissan’s credit rating was slashed to junk by S&P Global Ratings, the latest setback for a carmaker 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 automaker’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.

Nissan recovered from two years of losses and is still targeting an operating profit of ¥360 billion ($2.7 billion) for the fiscal year ending this month. 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.”

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 since the beginning of February.

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The outlook for the Japanese carmaker 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’s 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.

 

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