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Rating Action:

Moody's changes Mitsubishi Corp's outlook to negative; affirms A2 rating

 The document has been translated in other languages

22 May 2020

Tokyo, May 22, 2020 -- Moody's Japan K.K. has affirmed Mitsubishi Corporation's (Mitsubishi) A2 issuer and senior unsecured rating, (P)A2 senior unsecured shelf, (P)A2 and (P)P-1 of senior unsecured MTN program, Baa1 subordinated rating and P-1 Commercial Paper rating.

At the same time, Moody's has changed the outlook on Mitsubishi to negative from stable.

A full list of the affected ratings, including those assigned to Mitsubishi and its subsidiaries, is provided at the end of this press release.

RATINGS RATIONALE

"The negative outlook reflects weakening cash flow from lower commodity prices which will make it more challenging for Mitsubishi to maintain its leverage as we had previously expected," says Masako Kuwahara, a Moody's Vice President and Senior Analyst.

The rapid and widening spread of the coronavirus outbreak, deteriorating global economic outlook, falling oil prices, and asset price declines, are creating a severe and extensive credit shock across many sectors, regions and markets. The combined credit effects of these developments are unprecedented. The energy and minerals sectors have been among the sectors most significantly affected by the shock.

More specifically, the weaknesses in Mitsubishi's credit profile have left it vulnerable to shifts in market sentiment in these unprecedented operating conditions, and Mitsubishi remains vulnerable to the outbreak continuing to spread.

Moody's regards the coronavirus outbreak as a social risk under its ESG framework, given the substantial implications for public health and safety.

Mitsubishi has more commodity price exposure than some other Japanese trading companies, with mineral and natural gas segments accounting for over 50% of its net income in the fiscal year ending March 2020 (fiscal 2019). Moody's estimates that Mitsubishi's net income could decline by almost 40%-50% in fiscal 2020 from fiscal 2019, assuming Moody's price decks.

For example, based on Moody's price assumption of $30 per barrel for WTI, leverage as measured by funds from operations (FFO)/debt, is likely to deteriorate to around 10% in fiscal 2020, down in sequential years from 12.7% in fiscal 2019 and 18.5% in fiscal 2018.

The affirmation of the A2 rating is supported by Mitsubishi's diversified portfolio, which includes stable businesses that are less affected by the coronavirus outbreak, such as food, consumer industry and power. The company has a credible track record of deleveraging after the last commodity price downturn of 2014-15 by adhering to a financial policy focused on debt reduction. Mitsubishi has strong liquidity, which provides a sound buffer against near-term earnings volatility.

The ratings also consider the following environmental, social and governance (ESG) considerations.

Mitsubishi has a material exposure to commodities such as coking coal, natural gas, and copper. It is mitigating its carbon transition risk by reducing its thermal coal business and investing in renewable power.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

Given the negative outlook, upward pressure on Mitsubishi's ratings is unlikely over the next 12-18 months. But the outlook could return to stable if Moody's believes that the company can grow its earnings and cash flow sustainably from a diversified business portfolio while reducing earnings volatility, and demonstrate lower leverage, such that its debt/capitalization stays in the mid-40% range and FFO/debt remains above 15%.

Downward rating pressure could emerge if (1) Mitsubishi's leverage remains high, with its debt/capitalization exceeding 50% or FFO/debt remaining below 13% on a sustained basis; (2) its business risks increase more than expected volatility; or (3) the company adopts a financial policy more aggressive than assumed.

The principal methodology used in these ratings was Trading Companies (Japanese) published in July 2016 and available at http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_191144. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Mitsubishi Corporation, headquartered in Tokyo, is Japan's largest trading company by assets.

Affected Rating Actions:

Mitsubishi Corporation

- LT Issuer Rating, Affirmed A2

- Senior Unsecured (Foreign/Domestic), Affirmed A2

- Senior Unsecured Shelf (Domestic), Affirmed (P)A2

- Senior Unsecured Medium-Term Note Program (Foreign), Affirmed (P)A2/(P)P-1

- Subordinate (Domestic), Affirmed Baa1

- Commercial Paper (Domestic), Affirmed P-1

- Outlook, changed to negative from stable

Mitsubishi Corporation Finance PLC

- Backed Senior Unsecured (Foreign), Affirmed A2

- Backed Senior Unsecured Medium-Term Note Program (Foreign), Affirmed (P)A2/(P)P-1

- Backed Commercial Paper (Foreign), Affirmed P-1

- Outlook, changed to negative from stable

Mitsubishi Development Pty. Ltd

- Backed Senior Unsecured Medium-Term Note Program (Domestic), Affirmed (P)A2/(P)P-1

- Outlook, changed to negative from stable

Mitsubishi International Corporation

- Backed Senior Unsecured Medium-Term Note Program (Domestic), Affirmed (P)A2/(P)P-1

- Backed Commercial Paper (Foreign/Domestic), Affirmed P-1

- Outlook, changed to negative from stable

MC Finance & Consulting Asia Pte. Ltd.

- Backed Senior Unsecured Medium-Term Note Program (Domestic), Affirmed (P)A2

- Outlook, changed to negative from stable

MC Finance Australia Pty Ltd

- Backed Senior Unsecured Medium-Term Note Program (Domestic), Affirmed (P)A2/(P)P-1

- Backed Senior Unsecured (Domestic), Affirmed A2

- Outlook, changed to negative from stable

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security 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 certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain 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.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

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

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.

At least one ESG consideration was material to the credit rating action(s) announced and described above.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, 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 issued the credit rating is available on www.moodys.com.

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.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Masako Kuwahara
Vice President - Senior Analyst
Corporate Finance Group
Moody's Japan K.K.
Atago Green Hills Mori Tower 20fl
2-5-1 Atago, Minato-ku
Tokyo 105-6220
Japan
JOURNALISTS: 81 3 5408 4110
Client Service: 81 3 5408 4100

Mihoko Manabe
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 81 3 5408 4110
Client Service: 81 3 5408 4100

Releasing Office:
Moody's Japan K.K.
Atago Green Hills Mori Tower 20fl
2-5-1 Atago, Minato-ku
Tokyo 105-6220
Japan
JOURNALISTS: 81 3 5408 4110
Client Service: 81 3 5408 4100

No Related Data.
© 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.

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