MOODY'S ASSIGNS Baa1 RATING TO NICHIREI CORPORATION'S SENIOR UNSECURED LONG-TERM DEBT AND (P)Baa1 TO ITS JAPANESE SHELF REGISTRATION
TOKYO , January 24 1995 -- Moody's Investors Service assigned a Baa1 rating to the senior unsecured long-term debt of Nichirei Corporation (Nichirei), the leading refrigerated warehousing and frozen food manufacturing company in Japan. The rating agency also assigned a (P)Baa1 rating to its Yen 30 billion Japanese shelf registration. The rating reflects Moody's expectation that Nichirei will sustain its leading position in the growing frozen food market as well as in the refrigerated warehousing sector, thereby providing the company with stable cash flow. However, the rating also incorporates the volatility of Nichirei's marine and livestock sector, the company's moderate capital structure, and uncertainties surrounding its real estate business. This is the first time that Moody's has rated the debt of the company.
The rated debt securities are Nichirei's Yen 10 billion 4.35% domestic bonds, due 1999-- its Yen 10 billion 5.0% domestic convertible bonds, due 1997-- its Yen 10 billion 4.9% domestic convertible bonds, due 1996-- its DM130 million 4.5% bonds with warrants, due 1996-- its US$100 million 5.5% Euro bonds with warrants, due 1998-- and its Yen 10 billion 5.0% Euro bonds, due 2000.
Nichirei holds the top share in the frozen processed food market in Japan, according to Moody's. This sector should see continued demand growth due to heightened consumer interest in convenience, and the food service sector's efforts to reduce labor costs. With its strong new product development abilities, its solid distribution base associated with its refrigerated warehousing operation, and its raw materials procurement capabilities obtained through its foodstuff business, Nichirei is well positioned to sustain its leading position.
Moody's noted that Nichirei is the largest operator of public refrigerated warehouse space in Japan. Given the outlook for continued growth in imported food and frozen processed food, the refrigerated warehousing demand should see sustained growth. Yet, due to customers' efforts to reduce inventory levels, the warehousing operators' revenue sources are shifting from the storage to the handling sector, which has lower margins. On the other hand, the customers' heightened interest in inventory management should provide additional growth opportunities to warehouse operators, such as Nichirei, with the ability to offer comprehensive logistics services. As such, Moody's expects Nichirei to maintain its solid customer base, thereby generating stable cash flow from its refrigerated warehouse sector over the intermediate term.
According to the rating agency, over 40% of Nichirei's parent-only sales account for foodstuffs, such as marine and livestock products. The sector is vulnerable to market risk, thus its profitability is relatively volatile and low. Nichirei is also
diversified into a real estate business that includes leasing projects of buildings constructed on its former warehouse sites to
real estate companies that, in turn, sublease the space. The company thereby aimed to transfer the risk of fluctuations in
occupancy rate and rent to the real estate companies. Nichirei, however, is currently in dispute over lease payments with its
lessee triggered by the deteriorating office building market. While a potential financial burden exists, Moody's expects its
magnitude to be within a manageable range, considering the company's sufficient hidden gains on its asset holdings.
Nichirei's continued enhancement in its refrigerated warehouse capacity requires sustained investment needs. As such, Moody's expects the company's capital structure to remain moderate. Yet, considering its relatively low investment risk and Nichirei's stability of its mainstay operations, further deterioration in the company's debt protection measurements should be unlikely over the intermediate term.
Nichirei Corporation, headquartered in Tokyo, is the largest refrigerated warehouse operator and the leading frozen food manufacturer in Japan, with consolidated sales of Yen 523.4 billion for the fiscal year ended March 31, 1994.
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