JAPAN: Moody's won't upgrade Toyota's credit rating
Moody's Investor Service, a ratings agency, says that it won't upgrade Toyota's credit rating because the company will have insufficient profit.
Toyota is rated at Aa2, the highest among global carmakers and Moody's third highest level, but would need an annual operating profit of JPY1 trillion (US$11bn), more than triple its outlook for this year, before it can be considered for a higher rating, Tadashi Usui, senior analyst at the credit rating company, told Bloomberg News in Tokyo.
It also needs an operating margin of 5%, he said. Moody's downgraded Toyota last month from Aa1. In February 2009 it was rated at Aaa.
Moody’s and Standard & Poor’s, another credit ratings agency, began cutting Toyota’s rating last year after the carmaker posted the first of three straight quarterly losses. The well-publicised recall of more than 8m Toyotas worldwide damaged the company’s reputation, threatening to slow an earnings rebound, said Usui, adding: "I cannot say confidently that Toyota’s operating profit will recover smoothly”.
Toyota posted a record operating profit of JPY2.27 trillion in the year ending March 2008 and is forecasting JPY280bn this financial year, a 90% improvement on the JPY147.5bn in the year ending 31 March.
Standard & Poor’s, which also rates Toyota’s debt at its third-highest grade, AA, removed the company from its credit watch list on 14 May. The outlook may be raised to 'stable' from 'negative' in the next year or two, should Toyota’s recovery in profitability become clearer, Chizuko Satsukawa, a Tokyo-based analyst at S&P said.
Honda and Nissan must also increase profitability before Moody’s will consider raising their credit ratings, Usui said.
Honda needs an operating margin of 7% before Moody’s will consider raising its A1 rating, while a margin of less than 5% may trigger a downgrade; Nissan needs an operating margin higher than 5% for Moody’s to consider raising the current Baa2 rating, Usui said.