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February 18, 2008 |
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FURUKAWA ELECTRIC: S&P Raises Long-Term Credit Rating to BB+ Standard & Poor's Ratings Services upgraded to 'BB+' from 'BB' its long-term corporate credit rating on Furukawa Electric Co. Ltd., and raised to 'BBB-' from 'BB+' its long-term senior unsecured debt rating on the company. The upgrades are based on expectations that Furukawa will be able to maintain earnings at an improved level, backed by its resilience to any deterioration in the external business environment. It has enhanced this resilience over the past few years through cost reduction, streamlining and business diversification, and diminished concerns over downside risks. The outlook on the long-term corporate credit rating is stable. Although Furukawa is expected to post a year-on-year decrease in its earnings for fiscal 2007 (ending March 31, 2008), operating income for the year is likely to exceed that of fiscal 2005. Standard & Poor's sees only a minor concern over a material decrease in the company's earnings over the next two to three years. In recent quarters, the company has seen stagnant sales in its Light Metals segment due to a falloff in demand for its lucrative thick plate products, which are used in LCD and semiconductor manufacturing equipment. It also faces increased pressure on earnings from a surge in fuel and raw material prices, and stagnant demand in the Japanese optical fiber cable market. All of these factors have contributed to the company's forecast of decreased earnings in fiscal 2007. Conversely, the company's overall earnings are supported by its favorable performance in the overseas optical fiber cable business and steady performance in the Metals, Energy and Industrial Products, and Electronics and Automotive Systems segments. The company's earnings remain sensitive to fluctuations in the price of bare metals, such as copper and aluminum. However, the company's resilience to changes in the market environment has steadily improved through company efforts to diversify its businesses, keep reducing costs, and focus on high-value-added products. In line with its enhanced resilience, Furukawa's financial profile has improved and is unlikely to deteriorate materially over the next two to three years. The ratio of funds from operation (FFO) to net debt and the ratio of net debt to capital improved to about 19% and 54%, respectively, as of March 31, 2007 from 11% and 57% as of March 31, 2006. Free cash flow may turn negative in fiscal 2007, but this would be partly offset by a downward revision in capital expenditures, and as a result, total debt is unlikely to increase materially. Although the ratios are expected to deteriorate slightly, they are likely to remain steady. The rating on the long-term senior unsecured bonds issued by Furukawa Electric is one notch higher than the long-term corporate credit rating on the company. This reflects Standard & Poor's assumption that bondholders would incur no default losses, as any default by the company would take the form of a loan waiver, rather than bankruptcy. As a result, the default probability on the long-term senior unsecured bonds is lower than that on bank borrowings. The bond rating reflects the company's relatively high exposure to bank borrowings and close relationship with its main creditor banks. Ratings List Upgraded; CreditWatch/Outlook Action To From Furukawa Electric (Unsolicited Ratings) Corporate Credit Rating BB+/Stable/-- BB/Positive/-- Senior Unsecured Local Currency BBB- BB+ |
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