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Announcement:

Moody's changes Renault's outlook to positive; Ba1 ratings affirmed.

Global Credit Research - 11 Feb 2011

Approximately EUR 5.1 billion of debt affected

Frankfurt am Main, February 11, 2011 -- Moody's has today affirmed the Ba1 Corporate Family rating of Renault S.A.("Renault") and changed the outlook to positive from stable.

The outlook change to positive acknowledges the stronger than anticipated recovery in Renault's financial metrics that benefitted from the cash inflow of EUR3.0 billion resulting from the sale of its B-shares in AB Volvo as well as an improvement in operating performance and solid cash flow generation in 2010. Free cash flow generation (FCF) continued to benefit from a tight control of capital expenditures (capex), working capital and the omittance of the dividend payment. The resulting material improvement in credit metrics, albeit from low levels, and more confidence from the rating agency for a positive trajectory of the credit metrics are the key factors driving the positive outlook. Nonetheless there are risk to this scenario should the light vehicle demand in Western Europe, and in particular in France, be even weaker than currently expected or factors driving the weak operating profitability of the second half of 2010 not be corrected.

In 2010, the group's operating performance and credit metrics demonstrated material improvements from the very weak levels achieved in 2009 and 2008 thanks to strengthening industry volumes and asset disposals. The reported operating margin of its automotive activities recovered to 1.1% compared to -2.8% in 2009.

However, the positive momentum in its automobile division weakened in H2 2010 (operating margin -0.1%) compared to H1 2010 (2.2%) mainly in light of a deteriorating country and price mix as well as higher input costs. The group's lower cost base and its ambition to realize further costs synergies with Nissan should support Renault in improving profitability further in the next few years. A significant improvement in Renault's operating profits before the contribution of its associated companies remains a precondition for an investment grade rating in the future. The risk remains that intense price competition in Europe and pressure from increased raw material costs could offset any benefits from cost synergies and cost savings.

The Ba1 rating continues to be supported by the group's business profile with solid market positions in various regions, the successful introduction of its entry level range and the benefits from its alliance with Nissan (Baa2/stable). Going forward, we expect the company to materially improve the profitability in its core automobile division with a moderate downside risk linked with weak outlook for passenger car demand in Europe as well as intensifying price competition in the industry that could delay a recovery. The current rating also considers the group's conservative financial policy with a healthy liquidity profile and balance debt maturity profile.

On the other hand , Renault's inability to return to positive operating income in its automobile division in 2010 (a loss of EUR68 million calculated as Automotive operating margin of EUR396 million less other operating income & expenses of EUR -464 million) despite the strengthening industry conditions weighs negatively on the rating at this time. More fundamentally the company remains reliant -- although to a lesser extent than in the past - on a few successful models and geographical diversification is still limited with approx. 70% of revenues being generated in Europe. . This makes the group vulnerable to declining passenger car demand in France and a slow recovery in Western Europe in 2011. Moody's cautions about the risk that pressure from rising R&D needs, intense price competition in Europe, and increased raw material costs might partially offset improvements in profitability and FCF generation in the near term.

An upgrade to Baa3 could be envisaged over the next 12-18 months in case Renault would demonstrate improving market share performance in its key markets as well as a significant recovery in its operating performance (excluding the contribution from Nissan, Avtovaz and its remaining stake in AB Volvo) with operating margins of above 2% on a sustainable basis. This should also be reflected in Debt/EBITDA ratios of 2.5x-3.5x. In addition, we would expect the company to generate a positive Free Cash Flow through the cycle of around EUR300-750 million per annum.

Converesely the ratings could come under downward pressure in case of (i) an erosion in Renault's competitive position in its key markets reflected in market share losses, (ii) evidence that the market environment would turn worse than anticipated with regards to volumes or prices, (ii) the company's inability to turn around the operating performance of its automobile division as well as (iv) a sizeable cash absorption in the current year against the company's target to generate a positive free cash flow.

At 31 December 2010, Renault's principal liquidity sources consisted of cash on balance sheet in the amount of EUR8.8 billion, availability under undrawn committed credit lines of EUR4.0 billion, as well as potential cash flow generation from operations over the next 12 months. These cash sources provide adequate coverage for the major liquidity requirements that could arise during the next 12 months. These consist of short-term debt maturities of approximately EUR 4.7 billion, capital expenditures, working capital funding, day-to-day needs as well as expected dividend payments.

Outlook Actions:

..Issuer: Renault S.A.

....Outlook, Changed To Positive From Stable

The last rating action on Renault was a downgrade to Ba1/not Prime with a stable outlook from a Baa2/P-2 under review for possible downgrade on February 20, 2009.

The principal methodology used in this rating was Global Automobile Manufacture Industry published in December 2007.

Headquartered in Boulogne-Billancourt, France, Renault S.A. ("Renault", rated Ba1/NP/positive) is one of Europe's leading car manufacturers. The two other brands offered by Renault are Dacia (Romania) and Renault Samsung Motors (South Korea). In addition, Renault provides financing to dealers and end-customers through its wholly owned finance company, RCI banque. In fiscal year 2009, the group sold 2.6 million vehicles and reported total group revenues of EUR39.0 billion.

Frankfurt am Main
Falk Frey
Senior Vice President
Corporate Finance Group
Moody's Deutschland GmbH
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Paris
Eric de Bodard
MD - Corporate Finance
Corporate Finance Group
Moody's France SAS
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's Deutschland GmbH
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SUBSCRIBERS: 44 20 7772 5454

Moody's changes Renault's outlook to positive; Ba1 ratings affirmed.
No Related Data.
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