Weak profit outlook leads to Nissan's first debt rating cut in a decade

Tokyo

NISSAN Motor Co. took another hit as the automaker's debt rating was cut on concerns that the next two years will be marked by slowing sales and a preoccupation with cleaning up after the scandal involving Carlos Ghosn.

The company's rating was lowered for the first time in a decade by S&P Global Ratings to A- from A. The outlook on the long-term debt score is stable, the rating firm said. The company's A2 grade at Moody's Investors Service also was placed on review for a downgrade.

Nissan reduced its full-year earnings forecast after third-quarter profit missed analysts' estimates, adding to the headwinds for a carmaker struggling with the fallout from the arrest of former chairman Ghosn.

Sales in the US plunged 19 per cent in January amid an industrywide slump, intensifying the pressure on chief executive officer Hiroto Saikawa as he tries to ease tensions with partner and shareholder Renault SA. Nissan is cutting as many as 700 workers at a Mississippi factory because of slowing truck and van sales.

"Given severe business circumstances in the automotive business, we believe the company will find it difficult to restore its weakened profitability over the next one to two years," S&P said. "It will take time to stabilise its management."

The company declined to comment. Before the downgrade, Nissan already was getting the cold shoulder in the bond market, after Ghosn's incarceration exposed new lapses in corporate governance, according to market participants.

"It's bad timing because automakers all need financing for investment in new technologies," said Seiji Sugiura, an analyst at Tokai Tokyo Research Center. "It sends a negative message to shareholders because it increases the chance for them to cut their dividend."

The last time Nissan tapped the bond market was in April 2016, when it raised 125 billion yen (S$1.48 billion) in a sale of five-, seven- and 10-year notes. The spread on the 10-year security's yield has widened to about 60 basis points above equivalent Japanese government bonds this year, from 40 basis points at the time they were issued.

Nissan and its French partner have spent the last three months coping with a major reputational hit from Ghosn's arrest, indictments by Tokyo prosecutors over alleged financial improprieties and an unflattering spotlight on both companies' corporate governance controls.

Then there's the sluggish sales in China and the US, Britain's potentially jarring exit from the European Union and huge investments in electric and autonomous vehicles hovering over the entire auto industry. BLOOMBERG