MOODY'S DOWNGRADES DEBT RATINGS OF FOUR JAPANESE STEEL COMPANIES; PLACES THREE OTHERS ON REVIEW FOR POSSIBLE DOWNGRADE, AND CONFIRMS ONE
Tokyo, 06-03-98 -- Moody's Investors Service downgraded the long-term debt ratings of four Japanese steel companies, three of which continue to be reviewed for possible further downgrade. Moody's also placed debt ratings of three other Japanese steel companies under review for possible downgrade. Furthermore, Moody's confirmed the debt rating of one steel company, but changed the rating outlook from stable to negative.
The rating actions and the rating outlook change reflect growing pressures on the steel companies' earnings under the rapidly deteriorating operating environment for Japanese steel companies, including declining domestic steel demand, decreasing exports to Asia, and weak international steel prices. Weak performances of some rated steel companies' non-steel operations are also recognized. Moreover, the rating actions incorporate the rating agency's view that the risks of a highly leveraged capital structure are increasing amid the dismal economic performance and weakening banking system in Japan. Moody's also expects that a stressful operating environment for Japanese steel companies will continue over the intermediate term.
Moody*s downgraded and continues to review for further downgrade the senior unsecured debt ratings of Nippon Steel Corporation (to Baa1 from A3) and Kawasaki Steel Corporation (to Baa2 from Baa1), along with their supported subsidiaries, and the senior secured debt rating of Tokyo Steel Manufacturing Co., Ltd. (to Ba1 from Baa2). Also downgraded was the senior unsecured debt rating of Sumitomo Metal Industries (to Baa3 from Baa2, supported subsidiaries to Ba1 from Baa3). Sumitomo Metal's rating outlook is stable. Placed under review for possible downgrade were the senior unsecured debt ratings of NKK Corporation (currently Baa2), Kobe Steel, Ltd. (Baa3), and Daido Steel Co., Ltd. (Baa3), and supported subsidiaries. Moody's confirmed Nisshin Steel Co., Ltd.'s Baa2 rating, but changed the rating outlook to negative from stable.
Steel demand in Japan has been rapidly decreasing, due to depressed construction activities and lowering demand from many manufacturing industries. In addition, steel exports to Asia are dropping substantially reflecting the region's economic difficulties. Japanese steel makers have largely curtailed their production, but steel inventory remains high. Furthermore, sales prices are likely to be weak, due to soft export prices, continued pressures on domestic prices and the growing share of commodity product sales in their product mix. Although the rated steel companies achieved sizable cost reductions in the past five years, their profitability again faces major challenges. Some of the rated steel companies' non-steel operations are additional burdens on their profitability. In particular, semiconductor operations are currently a significant drag on their earnings due to depressed memory prices. Many other non-steel operations are also not established as sustainable profit contributors. Most rated steel companies are highly leveraged. Moody's recognizes that the evolution of drastic changes in the Japanese financial system, including the weakening financial fundamentals of the banking sector with asset size restraints, will reduce flexibility in the management of their highly leveraged capital structure.
The downgrade and review for possible further downgrade of the senior unsecured debt rating of Nippon Steel and supported subsidiaries (NS Finance, Inc. and Nippon Steel International Finance Netherlands B.V.) to Baa1 from A3 reflect increasing pressures on Nippon Steel's steel operation's operating margins, depressed profitability and uncertain strategic direction of its electronics device operation, and its highly leveraged financial position. Although Nippon Steel has held substantial latent values in its marketable securities portfolio and land holdings, such additional financial resources have been decreasing due to realization of part of such latent values in the past several years and generally declining stock and property prices in Japan. Its share buyback policy is also a factor negatively affecting its leverage position. However, Moody's recognizes Nippon Steel's strong leadership position in the steel industry, including its influential market shares and competitive advantage in technologies.
The downgrade of Kawasaki Steel and its supported subsidiary, KSC Capital of America, Inc.'s senior unsecured debt rating to Baa2 from Baa1, and review for possible further downgrade, incorporate the significantly deteriorating operating environment for its steel operation, poor performance of its non-steel operations, and its highly leveraged financial profile. Moody's will review Kawasaki's ability to manage its profitability by capitalizing on its competitive production facilities, further cost reductions, and the degree to which the company can realize meaningful debt reduction.
In its review for possible downgrade of NKK and its supported subsidiary, NKK Capital of America, Inc.'s Baa2 senior unsecured debt rating, Moody's will assess NKK's strategies to establish sustainable profitability in each of its steel and additional operations in the stressful business environment, including the mini mill operation of its subsidiary, Toa Steel Co., its engineering operation, and its electronics device operation. Moody*s will also assess strategies to improve its highly leveraged capital position with substantial debt reduction.
The downgrades of Sumitomo Metal Industries' (SMI) senior unsecured debt rating to Baa3 from Baa2 and its supported subsidiary, Sumitomo Metal International Finance Netherland's debt rating to Ba1 from Baa3 reflect pressures on SMI's earnings under the sluggish domestic economy and deteriorating Asian export environment. The rating outlook is stable. The rating action also incorporates SMI's highly leveraged capital structure and modest coverage measurements. Although Moody's recognizes that SMI's seamless pipe operation is competitive, overall performance of its steel operation will be pressured. Its ongoing capital investment programs for the steel operation and its expected investment in the silicon wafer operation, to be merged as of October 1998, will restrain significant improvement in its leverage position over the medium term, although such investments will add to its steel operation's cost and quality competitiveness and its electronics operation's sales growth. Furthermore, its share buyback policy is also a factor negatively affecting its leverage position. The review for possible downgrade of Kobe Steel and its supported subsidiary, Kobe Steel International Netherlands B,V.'s Baa3 senior unsecured debt rating will focus on Kobe's ability to manage its diversified business segments and improve overall profitability in the stressful operating environment for many of its businesses, including steel, engineering and machinery, electronics devices, and aluminum and copper products. Moody's will also review Kobe's capital strategy in the context of its weak capitalization and its financing plans with regard to its IPP and other investments over the intermediate term.
Moody's confirmed Nisshin Steel's Baa2 senior unsecured debt rating. However, the rating outlook has been changed to negative from stable. The rating confirmation is based on Nisshin's moderate debt position, leading to reasonable debt-protection measurements, its strong product development capabilities and niche position in certain products, and concentration of its resources on relatively high-value-added products. The rating outlook change, however, reflects sluggish demand and increasing price pressures on its products. If Nisshin fails to adequately mitigate these negative factors on its earnings through additional cost reduction, downward pressure on its rating will increase.
The review for possible downgrade of Daido Steel's Baa3 senior unsecured debt rating reflects Moody's concern that demand for specialty steel, Daido's main product, from automobile industry and other main customers will remain weak, and Daido's profitability will be pressured. Moody's will review Daido's ability to implement further cost reduction programs for its specialty steel operation, to realize meaningful profit contribution from its non-steel operations, and to cut its debt over the medium term.
The downgrade of the senior secured debt rating of Tokyo Steel, an electric furnace structural steel manufacturer, to Ba1 from Baa2, and review for possible further downgrade, reflect continued substantial pressures on Tokyo Steel's profitability due to prolonged stagnant demand for structural steel products from the construction industry, depressed prices of its main products, and volatile cost of steel scrap, its main raw material. The review will assess Tokyo Steel's ability to implement adequate strategies to improve profitability in the continued stressful operating environment, its capital expenditure and working capital requirements, and resulting potential changes in its capitalization.
© 2020 Moody's Corporation, Moody's Investors Service, Inc., Moody's Analytics, Inc. and/or their licensors and affiliates (collectively, "MOODY'S"). All rights reserved.
CREDIT RATINGS ISSUED BY MOODY'S INVESTORS SERVICE, INC. AND/OR ITS CREDIT RATINGS AFFILIATES ARE MOODY'S CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MATERIALS, PRODUCTS, SERVICES AND INFORMATION PUBLISHED BY MOODY'S (COLLECTIVELY, "PUBLICATIONS") MAY INCLUDE SUCH CURRENT OPINIONS. MOODY'S INVESTORS SERVICE DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT OR IMPAIRMENT. SEE MOODY'S RATING SYMBOLS AND DEFINITIONS PUBLICATION FOR INFORMATION ON THE TYPES OF CONTRACTUAL FINANCIAL OBLIGATIONS ADDRESSED BY MOODY'S INVESTORS SERVICE CREDIT RATINGS. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS, NON-CREDIT ASSESSMENTS ("ASSESSMENTS"), AND OTHER OPINIONS INCLUDED IN MOODY'S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. MOODY'S PUBLICATIONS MAY ALSO INCLUDE QUANTITATIVE MODEL-BASED ESTIMATES OF CREDIT RISK AND RELATED OPINIONS OR COMMENTARY PUBLISHED BY MOODY'S ANALYTICS, INC. AND/OR ITS AFFILIATES. MOODY'S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND MOODY'S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. MOODY'S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MOODY'S ISSUES ITS CREDIT RATINGS, ASSESSMENTS AND OTHER OPINIONS AND PUBLISHES ITS PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL, WITH DUE CARE, MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE.
MOODY'S CREDIT RATINGS,
ASSESSMENTS, OTHER OPINIONS, AND PUBLICATIONS ARE NOT INTENDED FOR USE BY RETAIL INVESTORS AND IT WOULD BE RECKLESS AND INAPPROPRIATE FOR RETAIL INVESTORS TO USE MOODY'S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS OR PUBLICATIONS WHEN MAKING AN INVESTMENT DECISION. IF IN DOUBT YOU SHOULD CONTACT YOUR FINANCIAL OR OTHER PROFESSIONAL ADVISER.
ALL INFORMATION CONTAINED HEREIN IS PROTECTED BY LAW, INCLUDING BUT NOT LIMITED TO, COPYRIGHT LAW, AND NONE OF SUCH INFORMATION MAY BE COPIED OR OTHERWISE REPRODUCED, REPACKAGED, FURTHER TRANSMITTED, TRANSFERRED, DISSEMINATED, REDISTRIBUTED OR RESOLD, OR STORED FOR SUBSEQUENT USE FOR ANY SUCH PURPOSE, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT MOODY'S PRIOR WRITTEN CONSENT.
MOODY'S CREDIT RATINGS,
ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS ARE NOT INTENDED FOR USE BY ANY PERSON AS A BENCHMARK AS THAT TERM IS DEFINED FOR REGULATORY PURPOSES AND MUST NOT BE USED IN ANY WAY THAT COULD RESULT IN THEM BEING CONSIDERED A BENCHMARK.
All information contained herein is obtained by MOODY'S from sources believed by it to be accurate and reliable. Because of the possibility of human or mechanical error as well as other factors, however, all information contained herein is provided "AS IS" without warranty of any kind. MOODY'S adopts all necessary measures so that the information it uses in assigning a credit rating 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 or in preparing its Publications.
To the extent permitted by law, MOODY'S and its directors, officers, employees, agents, representatives, licensors and suppliers disclaim liability to any person or entity for any indirect, special, consequential, or incidental losses or damages whatsoever arising from or in connection with the information contained herein or the use of or inability to use any such information, even if MOODY'S or any of its directors, officers, employees, agents, representatives, licensors or suppliers is advised in advance of the possibility of such losses or damages, including but not limited to: (a) any loss of present or prospective profits or (b) any loss or damage arising where the relevant financial instrument is not the subject of a particular credit rating assigned by MOODY'S.
To the extent permitted by law, MOODY'S and its directors, officers, employees, agents, representatives, licensors and suppliers disclaim liability for any direct or compensatory losses or damages caused to any person or entity, including but not limited to by any negligence (but excluding fraud, willful misconduct or any other type of liability that, for the avoidance of doubt, by law cannot be excluded) on the part of, or any contingency within or beyond the control of, MOODY'S or any of its directors, officers, employees, agents, representatives, licensors or suppliers, arising from or in connection with the information contained herein or the use of or inability to use any such information.
NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY CREDIT RATING, ASSESSMENT, OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY MOODY'S IN ANY FORM OR MANNER WHATSOEVER.
Moody's Investors Service, Inc., a wholly-owned credit rating agency subsidiary of Moody's Corporation ("MCO"), hereby discloses that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by Moody's Investors Service, Inc. have, prior to assignment of any credit rating, agreed to pay to Moody's Investors Service, Inc. for credit ratings opinions and services rendered by it fees ranging from $1,000 to approximately $2,700,000. MCO and Moody's investors Service also maintain policies and procedures to address the independence of Moody's Investors Service credit ratings and credit rating processes. Information regarding certain affiliations that may exist between directors of MCO and rated entities, and between entities who hold credit ratings from Moody's Investors Service and have also publicly reported to the SEC an ownership interest in MCO of more than 5%, is posted annually at www.moodys.com
under the heading "Investor Relations — Corporate Governance — Director and Shareholder Affiliation Policy."
Additional terms for Australia only: Any publication into Australia of this document is pursuant to the Australian Financial Services License of MOODY'S affiliate, Moody's Investors Service Pty Limited ABN 61 003 399 657AFSL 336969 and/or Moody's Analytics Australia Pty Ltd ABN 94 105 136 972 AFSL 383569 (as applicable). This document is intended to be provided only to "wholesale clients" within the meaning of section 761G of the Corporations Act 2001. By continuing to access this document from within Australia, you represent to MOODY'S that you are, or are accessing the document as a representative of, a "wholesale client" and that neither you nor the entity you represent will directly or indirectly disseminate this document or its contents to "retail clients" within the meaning of section 761G of the Corporations Act 2001. MOODY'S credit rating is an opinion as to the creditworthiness of a debt obligation of the issuer, not on the equity securities of the issuer or any form of security that is available to retail investors.
Additional terms for Japan only: Moody's Japan K.K. ("MJKK") is a wholly-owned credit rating agency subsidiary of Moody's Group Japan G.K., which is wholly-owned by Moody's Overseas Holdings Inc., a wholly-owned subsidiary of MCO. Moody's SF Japan K.K. ("MSFJ") is a wholly-owned credit rating agency subsidiary of MJKK. MSFJ is not a Nationally Recognized Statistical Rating Organization ("NRSRO"). Therefore, credit ratings assigned by MSFJ are Non-NRSRO Credit Ratings. Non-NRSRO Credit Ratings are assigned by an entity that is not a NRSRO and, consequently, the rated obligation will not qualify for certain types of treatment under U.S. laws. MJKK and MSFJ are credit rating agencies registered with the Japan Financial Services Agency and their registration numbers are FSA Commissioner (Ratings) No. 2 and 3 respectively.
MJKK or MSFJ (as applicable) hereby disclose that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MJKK or MSFJ (as applicable) have, prior to assignment of any credit rating, agreed to pay to MJKK or MSFJ (as applicable) for credit ratings opinions and services rendered by it fees ranging from JPY125,000 to approximately JPY250,000,000.
MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements.