MOODY'S CONFIRMS Baa2 RATING OF RENAULT AND A3 RATING OF VOLVO FOLLOWING ANNOUNCEMENT OF TRUCK OPERATION MERGER. RENAULT OUTLOOK CHANGED TO POSITIVE.
Moody's Investors Service confirmed the Baa2 long-term and Prime-2 short-term ratings of Renault S.A. and also confirmed the A3 long-term and Prime-2 short-term ratings of AB Volvo. Renault's rating outlook has been changed to positive from stable, and Volvo's outlook remains stable. These rating actions follow the announcement that Renault will contribute its truck operations to Volvo in exchange for 15% of Volvo's shares. As part of this transaction, Renault will also acquire an additional 5% of Volvo's shares in the open market for about Euro 500 million. In a separate transaction, Renault also announced that it is negotiating to acquire a controlling interest in Samsung - Korea's third largest automobile company - for approximately Euro 500 million.
The confirmation of the Renault ratings reflects our expectation that the company will: 1) maintain a competitive and profitable position in the European automobile markets; 2) generate sufficient cash flow to begin reducing debt and rebuilding its financial flexibility following its Euro 5 billion investment in Nissan and the contemplated investments of about Euro 1 billion in Volvo and Samsung; 3) be successful in helping to turn around the operational performance of Nissan and Samsung, and thereby lessen the risk of having to make future capital contributions to support these business; and 4) manage its world-wide operations and investments so that it secures a globally competitive position in the consolidating automotive industry. Renault's rating outlook is positive. To the extent the company is likely to achieve these operational and financial objectives, and is able to demonstrate that it will achieve an adequate return on its sizable investments in Volvo and Samsung, there could be upward pressure on the rating.
The confirmation of the Volvo rating reflects our view that Volvo is acquiring the Renault truck operations at an attractive price and that the competitive position, cost structure, and operating efficiencies of the company's global truck business will benefit from the combination with those of Renault. Moreover, Volvo's receipt of Euro 5.5 billion in connection with the sale of its car business to Ford, provides the company with adequate financial flexibility to fund the approximately Euro 1.5 billion purchase of Renault's truck operations. Although Volvo has agreed to exchange 15% of its common shares for these operations, these shares will not be newly issued. It is expected that Volvo will purchase these share in the open market at a cost of approximately Euro 1.5 billion.
Renault, headquartered in Boulogne-Billancourt, France, is a leading European auto manufacturer.
Volvo, headquartered in G”teborg, Sweden, is the largest industrial company in Sweden.
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