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February 22, 2008 |
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MITSUBISHI MOTORS: S&P Affirms 'B' Corporate Credit Rating Standard & Poor's Ratings Services placed its 'B' long-term corporate credit and 'B+' senior unsecured debt ratings on Mitsubishi Motors Corp. on CreditWatch with positive implications. This follows the increased likelihood that the company will achieve most of the profit targets set forth in its revitalization plan, and the progress the company has made in optimizing its global production system following its decision to close its assembly plant in Australia. Despite a slowdown in the North American market and a continuing slump in the Japanese market, Mitsubishi Motors' sales volume for fiscal 2007 (ending March 31, 2008) is expected to top that of the previous fiscal year thanks to strong performance in Europe, and Asia and other regions (excluding Japan, North America, and Europe). Even after factoring in losses of about 22 billion from restructuring costs on its plant in Australia, the company is likely to record an operating profit of 80 billion and a net profit of 20 billion in fiscal 2007. It is largely on track to achieve the targets (operating profit of 74 billion and a net profit of 41 billion) laid down in its revitalization plan, which ends in fiscal 2007. We believe that the current level of downside risk to the company's financial performance has diminished. This is partially due to significantly reduced risk at its captive finance operations. The company achieved this significant reduction in credit risk exposure and capital funding burden following its switch to a new arrangement at its U.S. captive finance operation in July 2005. On the other hand, Mitsubishi Motors continues to face challenges in fundamentally enhancing its overall business and financial profile. For example, it is challenged to both reestablish financial policies once its revitalization plan concludes and boost its market competitiveness and financial resources. Moreover, optimizing its global production system has been an issue for the company as it has been faced with low utilization of its assembly plants in North America, Europe, and Australia. However, this month Mitsubishi Motor announced its decision to close its plant in Australia, which should reduce fixed costs. Standard & Poor's views the Australian plant closure as a step forward toward the optimization of its global production system. Standard & Poor's will resolve the CreditWatch listing after reviewing such factors as Mitsubishi Motors' post-revitalization medium-term management plan, the sustainability of improving trends in the company's operating and financial performance, and funding and repayment plans. It is very likely that an upgrade of Mitsubishi Motors's long-term corporate rating will be limited to one notch, considering the challenges that the company faces. Regarding the long-term senior unsecured debt rating, if Mitsubishi Motors' liabilities with high seniority, such as its secured debt, continue to decrease, and the structural subordination of its rated senior unsecured debt is determined as likely to be dissolved, the long-term debt rating may be revised to a level that is two-notches higher than the long-term corporate credit rating. Presently, the long-term debt rating is one notch higher than the long-term corporate credit rating, reflecting the assumption that bondholders would incur no losses from default, as Standard & Poor's believes there is a probability that any default by the company would take the form of a loan waiver, rather than bankruptcy. At the same time, the rating reflects the relatively weak seniority of the rated unsecured bonds, as high priority liabilities make up a relatively large proportion of the company's total assets. Ratings List: Ratings Affirmed; CreditWatch/Outlook Action To From Mitsubishi Motors Corp. Corporate Credit Rating B/Watch Pos/-- B/Stable/-- Senior Unsecured Local Currency B+/Watch Pos B+ About Mitsubishi Motors Headquartered in Tokyo, Japan, Mitsubishi Motors Corporation -- http://www.mitsubishi-motors.co.jp/ -- is one of the few automobile companies in the world that produces a full line of automotive products ranging from 660-cc mini cars and passenger cars to commercial vehicles and heavy-duty trucks and buses. The company also operates consumer-financing services and provides this to its customer base. MMC adopted the Mitsubishi Motors Revitalization Plan on Jan. 28, 2005, as its three- year business plan covering fiscal 2005 through 2007, after investor DaimlerChrysler backed out from the company. The main objectives of the plan are "Regaining Trust" and "Business Revitalization." The company has operations worldwide, covering the United States, Germany, the United Kingdom, Italy, the Netherlands, the Philippines, Indonesia, Malaysia, China and Australia. Its products are sold in over 170 countries. |
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