Credit rating firm Fitch thinks Sony is at a greater risk of losing more compared to its rival Panasonic Corp in the continuing electronics slump of Japanese companies.
Fitch gave Panasonic a two-notch-above-BB rating on Thursday. The rating firm cut Sony’s rating to three notches to BB minus on the same day. It is the first time that one of the biggest rating firms trashed the creditworthiness of the two companies to junk-bond level.
Other rival rating agencies S&P and Moody’s also gave both companies the same credit rating, which is barely above junk status. Panasonic received Moody’s most recent cut last Tuesday.
Matt Jamieson, Fitch Asia-Pacific office head, commented that Panasonic “has the advantage of a relatively stable consumer appliance business that is still generating positive margins”. On the other hand, he said that for Sony, “most of their electronic business are loss making, they appear to be overstretched.”
Almost all of Japan’s TV industry, which had seen better days in the past, is struggling to remain in business as the cheaper and more innovative South Korean Samsung Electronics as well as other foreign rivals are taking over. Tablets and smartphones from Apple Inc have become the current bestsellers in the consumer electronics industry.
Both Sony and Panasonic have become the focus of investors following another rival’s request for bailout as Sharp Corp managed to get help in the form of a $4.6 billion aid from banks like the Mitsubishi UFJ Financial Group and Mizuho Financial Group.
To survive, both Sony and Panasonic decided to look for different ways. Panasonic hopes to grow its business in solar panels, appliances, automotive components, and lithium batteries. Its appliances unit composed of only 6 percent of the total company sales, but was able to provide margins above 6 percent, as well as made up a big slice in the overall operating profit.
On the other hand, Sony, the creator of the vaunted Walkman, is focusing on consumer gadgets to hopefully take the initiative in its fight against Samsung and Apple in the mpbile business, while at the same time doubling down on gaming and digital cameras.
The consequence of the lowered credit ratings for both companies is the difficulty in raising capital in credit markets to help turn their fate around.
At the moment though, the effects are hardly significant as both companies have the full confidence of their banks.
Panasonic previously forecast an operating loss of $10 billion until March 31 2013, but managed to secure a financial bailout from banks like Mitsubishi UFJ and Sumitomo Mitsui an amount of around $7.6 billion. The move, according to Panasonic, was a good financing backstop to prevent the company from looking for money in credit markets.
Sony is trying to save itself by selling off non-core businesses including the sale of its chemicals business to a Japanese bank, and announced that it should be able to make arouind $1.9 billion through a convertible bond.
Another market analyst firm, Thomson Reuter’s Starmine, through its structural model system that evaluates debt levels, changes in asset values and credit risks, gave both Sony and Panasonic an implied rating of BB minus. Sharp got an implied rating of B minus, three notches lower.
Panasonic and Sony both received a rating of BBB from Standard & Poor. Moody’s Investors Service cut both companies at Baa3, the lowest of the firm’s high-grade category. Moody’s forecast a negative performance for both companies while S&P sees Sony as struggling and a stable outlook for Panasonic.