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Announcement:

Moody's reviews Sony's Baa1/P-2 ratings for downgrade

Global Credit Research - 06 Aug 2012

Approximately USD4.7 billion in debt affected

Hong Kong, August 06, 2012 -- Moody's Investors Service has placed Sony Corporation's Baa1 long-term senior unsecured bond and issuer ratings and the Prime-2 short-term ratings of Sony and its supported subsidiary, Sony Global Treasury Services Plc., on review for downgrade.

RATINGS RATIONALE

The rating actions reflect Moody's concern that weak consumer sentiment, especially in Europe and China, and a strong yen versus the euro may hinder the timely recovery of Sony's earnings and leverage.

In addition, the company's digital audio visual (AV) and mobile-phone businesses continue to be plagued by structural challenges, such as the commoditization and maturity of major products, rapid technological changes, and intense global competition. Sony has not been able to deal with these issues effectively.

On 2 August, Sony reported consolidated operating profit of JPY20.4 billion for 1Q FYE03/2013 operating margin of 1.3%, excluding non-recurring expenses and equity losses.

Moody's estimates that the company incurred an operating loss of JPY5 billion-JPY10 billion and an operating margin loss of up to 1% in its non-financial services businesses on the same basis, because of sustained operating losses in TVs and mobile phones.

TV and mobile communication products are two major product categories for Sony, accounting for about 25% of sales in its non-financial services businesses in 1Q FYE03/2013. Low margins in these segments are the major reason for Sony's low and volatile earnings.

Difficult economic conditions as well as weakened demand for compact digital cameras and portable game consoles due to the increasing usage of smartphones are also hurting earnings from digital imaging products and games (10% and 9% of the non-financial services businesses, respectively).

As a result, Sony lowered its outlook for FYE03/2013. It now expects consolidated operating income of JPY220 billion for FYE03/2013 versus its earlier estimate of JPY260 billion, excluding non-recurring expenses and equity losses, while lowering its consolidated operating margin estimate to 3.2% from 3.5%.

Based on the revised forecast, the company's reported operating margin in its non-financial services businesses, on the same basis, will be roughly 1.5%-2.0%, compared to breakeven for FYE03/2012.

Moody's expects adjusted debt/EBITDA in Sony's non-financial services businesses, excluding non-recurring expenses and equity losses, to be over 3.5x in FYE03/2013, versus more than 5x in FYE03/2012. These financial metrics are weak for the current rating level.

Moody's review will focus on Sony's ability to restore its earnings and leverage by dealing with its structural challenges effectively. Moody's will also assess Sony's investment and financial strategy. In particular, Moody's will focus on Sony's approach to strengthen and diversify its earnings base over the medium term.

The principal methodology used in rating Sony Corporation and Sony Global Treasury Services plc was the Asian Consumer Electronics Industry Methodology published in December 2010. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

Sony Corporation, headquartered in Tokyo, is one of the world's leading manufacturers of consumer electronics products.

REGULATORY DISCLOSURES

The Global Scale Credit Ratings on this press release that are issued by one of Moody's affiliates outside the EU are endorsed by Moody's Investors Service Ltd., One Canada Square, Canary Wharf, London E 14 5FA, UK, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that has issued a particular Credit Rating is available on www.moodys.com.

For ratings issued on a program, series or category/class of debt, this announcement provides relevant regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides relevant regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides relevant regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

The ratings have been disclosed to the rated entities or their designated agent(s) and issued with no amendment resulting from that disclosure.

Moody's considers the quality of information available on the rated entities, obligations or credits satisfactory for the purposes of issuing these ratings.

Moody's adopts all necessary measures so that the information it uses in assigning the ratings is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.

Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history. The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Yoshio Takahashi
Asst Vice President - Analyst
Corporate Finance Group
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077

Richard Chase Bittenbender
Associate Managing Director
Corporate Finance Group
JOURNALISTS: (03) 5408-4110
SUBSCRIBERS: (03) 5408-4100

Releasing Office:
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077

Moody's reviews Sony's Baa1/P-2 ratings for downgrade
No Related Data.

 

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