Nissan Motor 'BBB+/A-2' Ratings Placed On CreditWatch Negative On COVID-19 Pandemic

  • Downward pressure on Nissan Motor's profitability is likely to intensify as the global spread of COVID-19 worsens what was already a difficult business environment for the global auto industry.
  • Pandemic effects, including stagnant sales in key markets, possible disruption of global production activities, and currency exchange volatility raise the risk of further EBITDA margin deterioration.
  • We are placing the ratings on Nissan on CreditWatch with negative implications.
  • We will resolve CreditWatch placement after analyzing fiscal 2019 results to be announced and the prospects for its financial performance over the coming year.
TOKYO (S&P Global Ratings) March 26, 2020--S&P Global Ratings today said it 
has placed its 'BBB+' long-term issuer and senior unsecured issue credit 
ratings and 'A-2' short-term issuer credit rating on Nissan Motor Co. Ltd. on 
CreditWatch with negative implications. At the same time, we placed the 
ratings on the company's overseas subsidiaries on CreditWatch with negative 
implications (see the list below).

The CreditWatch placement reflects our view that there is a risk of a material 
deterioration in the company's profitability over the next one to two years. 
We expect downward pressure on the company's EBITDA margin to intensify. The 
COVID-19 pandemic may push down auto sales, lead to prolonged disruption of 
global production activities, and cause material currency fluctuations.

COVID-19 fallout has increased the likelihood that the company's EBITDA margin 
(excluding captive finance operations) will deteriorate over the next one to 
two years from the 5.5% seen in fiscal 2018 (ended March 31, 2019). The 
pandemic has amplified the severity of global business conditions for the 
automobile industry. We assume annual new car sales will fall in North America 
by 15%-20% year-on-year in 2020 and recover by 10%-12% in 2021. In the same 
years, respectively, we assume they will fall 15%-20% and recover 9%-11% in 
Europe; and fall by 8%-10% and recover by 2%-4% in China. Nissan's highly 
competitive new models will not start contributing to an improvement in 
business performance until 2021 or later, in our view. Nissan has announced 
the suspension of operations at its factories in three U.S. locations. In 
addition, lower sales and production suspensions in the U.K. and other 
European locations will hit the company harder than other Japanese automakers. 
In addition, currency volatility could hurt profitability, and one-time 
expenses relating to reduction in excess production capacity and staff layoffs 
could worsen profitability, in our opinion.

Meanwhile, we expect Nissan to maintain its sound financial profile with a net 
cash position. This will support the ratings on the company to a certain 
degree. The company held about ¥850 billion in net cash in its automobile 
business as of Dec. 31, 2019. While profitability continues to decline 
sharply, the company is likely to emphasize its financial health and focus on 
improving cash flow by reducing capital expenditures and growth investment. In 
addition, the company has ample cash and deposits at hand and strong ties with 
major Japanese banks. Consequently, we expect the company to maintain 
sufficient liquidity.

We intend to resolve the CreditWatch placement within 90 days after examining: 
  • The outlook for the company's business performance and financial health indicators for the next one to two years;
  • Full-year results for fiscal 2019 (ending March 31, 2020); and
  • Sales and production plans for fiscal 2020 onward.
In resolving the CreditWatch placement, we will examine the outlooks for a 
recovery of auto sales in China, North America, and Europe. We will also 
consider the recovery of free operating cash flow, incorporating Nissan's 
policies related to capital expenditures, growth investment, and shareholder 
returns. In addition, we focus on the company's new medium-term management 
plan, and how strategic actions related to its alliance with Renault S.A. and 
Mitsubishi Motors Corp. help improve earnings. We will consider a downgrade if 
we see a likelihood that the company's EBITDA margin will not improve to 
higher than 6%, the average among global automakers, in fiscal 2020.

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