S&P Global Ratings downgraded Nissan’s credit rating to junk, dealing a setback to the carmaker that has battled to increase profitability in the years since the arrest of former Chairman Carlos Ghosn and the industry’s shift toward electrification.
Although Nissan turned around its two-year losing streak and continues to aim for an operating profit of $2.7 billion for the fiscal year that ends this month, it hasn’t had many new car models to draw in customers.
Although a weaker yen in late 2022 also helped increase money earned at home, offsetting production bottlenecks, that benefit is evaporating as the currency gains strength. According to S&P, Nissan’s profitability will continue to trail that of its rivals for the following one to two years.
According to the agency, it anticipates that supply-chain problems will continue to hinder any sales recovery in the U.S. and Europe and put pressure on businesses to decrease their pricing. Meanwhile, if Nissan has a bad rating, selling foreign currency bonds abroad will cost more.
The Yokohama-based corporation last sold dollar and euro bonds in 2020, however, it did sell a sustainability bond in yen in January. On Tuesday, the cost of its 2027 dollar-denominated note decreased 0.2 cents to 91.1 cents on the dollar. Around 3 yen has been lost since the start of February.
S&P stated that the outlook for the Japanese manufacturer is stable and cited the company’s modest improvement in profitability and its conservative approach to financial planning. For instance, Nissan will sell 3.6 million to 3.7 million vehicles in the fiscal year that ends in March 2024, undershooting the 5.4 million targets set by the firm in its long-term business strategy, according to the agency’s projection.
S&P added that if Nissan can significantly boost sales and cash flow over the next 12 to 18 months, it will think about improving its rating.
But, the agency warned that the company’s rating may be cut if its free operating cash flow turned out to be permanently negative, if significant strategic investments had an adverse effect on its financial basis, or if its market share in North America or China continued to decline.