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Rating Action:

Moody's downgrades Hitachi to A3; outlook negative

29 May 2009

Approximately USD9.07 billion of debt affected

Tokyo, May 29, 2009 -- Moody's Investors Service has downgraded the long-term debt ratings of Hitachi, Ltd. (Hitachi) to A3 from A2, and the short-term ratings of both Hitachi and its supported subsidiaries to Prime-2 from Prime-1. The outlook for the ratings is negative.

The rating actions conclude the review for possible downgrade initiated by Moody's on February 2, 2009.

Moody's downgrade of Hitachi's ratings has been driven by the company's severely pressured profitability and its significantly increased financial leverage.

The rating actions further reflect Moody's view that Hitachi will need some time to achieve a recovery in its overall profitability, as its entire business portfolio is now being pressured. As a result, restoring the company's balance sheet will also require a considerable amount of time.

The negative rating outlook indicates Moody's uncertainty over whether Hitachi will be able to implement its business strategy in a timely and effective way in an operating environment that is difficult to predict.

Hitachi recorded a significant net loss of JPY787.3 billion in FYE3/2009, although it did report an operating profit of JPY127.1 billion. The large net loss -- compared to the operating profit -- was due mainly to write-downs of deferred tax assets, structural reform-related expenses, equity in earnings of affiliates, and other factors.

For FYE3/2010, Hitachi is projecting a drop in operating profit to JPY30.0 billion, and a net loss of JPY270.0 billion, mainly as a result of business restructuring expenses for the improvement of its business portfolio.

Hitachi has a diversified business portfolio with many strong group companies in each sector. These companies manufacture basic materials and/or equipment for a number of industries. Nevertheless, most of its businesses have been severely affected by the challenging environment for Japanese industry overall.

Hitachi's new management recently announced that it would further concentrate on its "Social Innovation Business," which includes information and telecommunication systems, power systems, environmental, industrial and transportation systems, and social and urban systems. The company considers this business a core competency, in which it has unrivaled strength.

Moody's believes that Hitachi's concentration on this area, along with its business portfolio restructuring and cost cutting efforts, will help stabilize -- possibly even improve -- its overall profitability, thanks to its strong market position and competitiveness, along with the solid growth potential of its core markets, such as power plants and transportation system operations for the global markets.

Nevertheless, the rating agency is concerned that Hitachi will need some time to restore overall profitability, given the severity of economic conditions and the resulting decline in social capital investment.

Hitachi's balance sheet was severely damaged in FYE3/2009. Its total debt to total capitalization ratio (based on preliminary adjustments) was impaired significantly, rising to about 65% at end-March 2009, from about 52% a year earlier. And its financial profile will be further impaired by the restructuring and reorganization measures the company is implementing in FYE3/2010.

However, Moody's believes that Hitachi has a financial strategy designed to improve its damaged cash generating ability and financial position. Accordingly, the rating agency expects that the company will be able to manage its balance sheet appropriately and maintain sufficient liquidity, given its strong access to the financial markets.

Hitachi's rating will face further downward pressure if financial metrics and cash flow coverage were to weaken further. A debt/EBITDA ratio over 4.0x for a few years running could be a trigger for further discussion on the ratings.

The last rating action for Hitachi was implemented on February 2, 2009, when Moody's downgraded the company's long-term debt ratings to A2 from A1 and the ratings were also placed on review for further possible downgrade. The Prime-1 short-term ratings of Hitachi and its supported subsidiaries were also placed on review for possible downgrade at that time.

The principal methodology used in rating Hitachi was "Global Manufacturing Industry, December 2007," which can be found at www.moodys.com in the Credit Policy & Methodologies directory, in the Ratings Methodologies subdirectory. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found in the Credit Policy & Methodologies directory.

Hitachi, Ltd., headquartered in Tokyo, is a leading integrated electronics company in Japan.

Tokyo
Kazusada Hirose
Vice President - Senior Analyst
Corporate Finance Group
Moody's Japan K.K.
JOURNALISTS: (03) 5408-4110
SUBSCRIBERS: (03) 5408-4100

Tokyo
Shinsuke Tanimoto
Senior Vice President - Team Leader
Corporate Finance Group
Moody's Japan K.K.
JOURNALISTS: (03) 5408-4110
SUBSCRIBERS: (03) 5408-4100

Moody's downgrades Hitachi to A3; outlook negative
No Related Data.
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