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Rating Action:

Moody's changes Sony's outlook to positive from stable; affirms Ba1 ratings

 The document has been translated in other languages

30 Jun 2015

Tokyo, June 30, 2015 -- Moody's Japan K.K. has changed Sony Corporation's ratings outlook to positive from stable. At the same time, Moody's has affirmed Sony's Ba1 issuer and long-term senior unsecured bond ratings.

Moody's has also affirmed Not Prime short-term rating of its supported subsidiary, Sony Global Treasury Services Plc.

RATINGS RATIONALE

"The change in Sony's ratings outlook to positive from stable principally reflects the company's efforts in effectively lowering its financial leverage over the past year as well as our view that steady progress in the company's restructuring efforts will help sustain its operating performance over the next 12-18 months," says Takashi Akimoto, a Moody's Analyst.

"The change in Sony's ratings outlook also reflects the alleviation of our concerns over a potential deterioration in its financial leverage, following Sony's announcement today that its recently expanded capex program would be funded by new equity offerings," says Akimoto who is also the Lead Analyst for Sony.

"The company's now lower leverage combined with the benefit of additional equity has provided a more meaningful cushion within its rating to absorb potential volatility in its operating environment and earnings", adds Akimoto.

On 30 June 2015, Sony announced an approximate JPY320 billion issuance of new shares together with a secondary offering of shares and a JPY120 billion issuance of new convertible bonds. Proceeds from the share and bond issuance will be mainly used to expand the company's production capacity and to enhance research and development activities for its image sensors business. In addition, JPY69 billion out of JPY120 billion issuance of convertible bonds will be used for existing debt repayment.

Sony announced in April 2015 that it would more than double its capex for FYE3/2016 to JPY501.0 billion from the JPY243.9 billion notified at FYE3/2015.

Sony's reported total debt for its non-financial services businesses fell by JPY360.8 billion for FYE3/2015 to JPY886.3 billion from JPY1.25 trillion at FYE3/2014.

A recovery in the operating performance of its non-financial services businesses contributed to its improved financial leverage. Specifically, adjusted debt/EBITDA of 2.9x for FYE3/2015 improved materially from the 4.5x for FYE3/2014. We expect that with today's announcement of new equity issuance and taking into account its heightened capex plans, the company's financial profile should be more manageable within the rating.

"Sony's debt reduction efforts and proposed equity issuance are credit positive and indicative of management's greater commitment to restoring its financial strength", adds Akimoto.

The company's mid-range plan — covering the periods from FYE3/2016 to FYE3/2018 — aims to transform its operations by focusing on profitability rather than volume.

In addition, all business segments — except for mobile communications — posted positive operating income at FYE 3/2015, supported by steady progress in the company's restructuring efforts to turn around its unprofitable businesses.

Sony expects to report solid operating performance in FYE3/2016. In particular, the company expects to post operating income of JPY145.0 billion in FYE3/2016; excluding its financial segment.

Sony's forecast for operating income in FYE3/2016 contrasts significantly from its operating loss of JPY124.8 billion in FYE3/2015. Moody's notes that the operating loss in FYE3/2015 includes non-recurring expenses, such as a JPY98.0 billion in restructuring charges and JPY176.0 billion in goodwill impairment charges related to its mobile communications segment.

"Nevertheless, a level of uncertainty remains as to whether or not Sony can achieve sustainable operating performance over the longer term; especially in its consumer electronics-related businesses, where pricing pressures remain strong" Says Akimoto.

For instance, Sony's mobile communications segment will likely incur an operating loss of JPY39.0 billion for FYE3/2016. Moody's will continue to monitor Sony's progress on its restructuring measures for this segment, and whether or not the segment's profitability recovers.

Sony's Ba1 ratings reflect its diversified business portfolio, as seen by its broad range of products; strong brand recognition; large scale and geographically diversified earnings stream. The ratings also incorporate the challenges it faces in stabilizing its profitability.

The positive outlook provides a potential pathway to ratings improvement should debt remain permanently lower and earnings stabilize further in its key operating segments.

Sony's ratings could experience upgrade pressure if its non-financial services businesses maintain: 1) an adjusted debt/EBITDA of 4.0x-4.5x; and 2) an adjusted debt/capitalization below 55%.

On the other hand, downward ratings pressure could emerge if profitability, cash flow, and leverage deteriorate further, and if Sony's non-financial services segments fail to maintain overall operating profit — excluding non-recurring gains and losses, and equity income — or if adjusted debt/EBITDA deteriorates to the 6x-7x range, or adjusted debt/capitalization deteriorates such that the ratio exceeds 65%.

The principal methodology used in these ratings was Global Manufacturing Companies (Japanese) published in August 2014. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

Sony Corporation, headquartered in Tokyo, is one of the world's leading manufacturers of consumer electronics products.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt 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 rating action on the support provider and in relation to each particular 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 rating action, and whose ratings may change as a result of this 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 following information supplements Disclosure 10 ("Information Relating to Conflicts of Interest as required by Paragraph (a)(1)(ii)(J) of SEC Rule 17g-7") in the regulatory disclosures made at the ratings tab on the issuer/entity page on www.moodys.com for each credit rating as indicated:

Moody's also was paid for services other than determining a credit rating in the most recently ended fiscal year by the person(s) that paid Moody's to determine this credit rating.

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

Moody's Japan K.K. is a credit rating agency registered with the Japan Financial Services Agency and its registration number is FSA Commissioner (Ratings) No. 2. The Financial Services Agency has not imposed any supervisory measures on Moody's Japan K.K. in the past year.

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.

Takashi Akimoto
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: 813-5408-4110
SUBSCRIBERS: 813-5408-4100

Ian Lewis
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 813-5408-4110
SUBSCRIBERS: 813-5408-4100

Releasing Office:
Moody's Japan K.K.
Atago Green Hills Mori Tower 20fl
2-5-1 Atago, Minato-ku
Tokyo 105-6220
Japan
JOURNALISTS: 813-5408-4110
SUBSCRIBERS: 813-5408-4100

Moody's changes Sony's outlook to positive from stable; affirms Ba1 ratings
No Related Data.
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