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Nissan Motor Long-Term Ratings Lowered To 'BBB' As COVID-19 Dims Earnings Prospects; Ratings Remain On Watch Negative

  • COVID-19 likely pulled Nissan Motor deep into the red in fiscal 2019: Harsh business conditions and expected restructuring costs have made a strong earnings recovery in fiscal 2020 less likely.
  • In our view, pandemic effects could intensify or persist, causing a slow recovery in Nissan's business and financial performance to further weigh on its credit quality.
  • We are lowering by one notch to 'BBB' our long-term credit ratings on Nissan Motor; our long- and short-term credit ratings on the company remain on CreditWatch with negative implications.
  • We intend to resolve the CreditWatch placements after evaluating the outlook of its performance and financial health for the coming one to two years, based on pandemic conditions and the company's likely performance from fiscal 2020 onward.
TOKYO (S&P Global Ratings) May 1, 2020--S&P Global Ratings today said it has lowered by one notch its 'BBB' long-term issuer credit ratings on Nissan Motor Co. Ltd. At the same time, we are affirming our 'A-2' short-term issuer credit ratings on the company. We also took the same actions on our ratings on the company's overseas subsidiaries. All our ratings on the companies remain on CreditWatch with negative implications, where we placed them on March 26, 2020 (see the list below).
Our downgrades are based on our view that the tough business conditions and the expectation of restructuring costs have diminished the likelihood that Nissan Motor's EBITDA margin will recover in fiscal 2020 (ending March 31, 2021) to levels we previously assumed. We had assumed the EBITDA margin would improve to near 6% in fiscal 2020 after dipping in fiscal 2019 to 5% or below. However, the COVID-19 pandemic has made a material deterioration in its Nissan Motor's profitability and financial soundness inevitable, in our view.
We believe extremely severe business conditions are likely to continue in fiscal 2020. This follows a forecast for a consolidated net loss of about ¥85 billion- ¥95 billion in fiscal 2019, which the company announced on April 28, 2020. The pandemic has been hurting its production and sales in its key businesses bases North America and Europe.
The company's profitability is likely to take a harsher hit than those of other Japanese automakers with global footprints, such as Toyota Motor Corp. and Honda Motor Co. Ltd. This is because of likely restructuring costs associated with excess production capacity in North America and Europe and cutting staff under its business strategy. Such costs are likely to add to pressure profitability in the coming one to two years, in our view.
We kept the ratings on CreditWatch negative because we can't rule out the possibility that the impact of the pandemic might intensify or persist. This would weaken recovery in its business performance and hurt finances, weighing further on its credit quality.
We intend to resolve the CreditWatch placements after examining the outlook of its business performance and financial health indicators for the next one to two years. In resolving the CreditWatch placements, we will examine prospects for:
  • An end to the pandemic;
  • A resumption of its global production activities and capacity utilization;
  • Sales plans, including rollout schedules;
  • The burden of restructuring costs; and
  • Funding plans.
We might consider lowering our rating on the company by one notch if we determine that its business performance is unlikely to recover to some degree in fiscal 2020 and its profitability is likely to remain weak. We might also consider a downgrade if we expect the strong financial base with a net cash position to come under strong pressure.

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