Standard & Poor’s on Monday reportedly said it might further cut its junk-level credit ratings on Fiat SpA after the Italian industrial group delayed a turnaround target for its loss-making auto arm.

Reuters said S&P affirmed Fiat’s long-term corporate credit rating of “BB-minus,” the third-highest “junk” rating, and its “B” short-term corporate credit rating, recognising that first half group level results had showed a “noticeable improvement.”

But S&P also reportedly said it had reduced its rating outlook to negative from stable due to “concerns over the turnaround of Fiat’s automobile business in a difficult competitive environment (now expected in 2006 instead of 2005), as well as the group’s growing refinancing risk beyond the next 12 months.”

Reuters noted that Fiat Auto made an operating loss of €282 million ($US345.7 million) in the second quarter of 2004 and last month a new management team said a target for profit at operating level at the division had been moved back by a year until 2006.

In its statement on Monday, S&P reportedly also noted most of Fiat’s available bank line will mature in July 2005, while its operations are likely to remain a drain on cash over the next 12 months. “Consequently, Fiat’s refinancing risk could markedly increase beyond the next 12 months,” S&P said.

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Reuters said several banks came to Fiat’s rescue in mid-2002 to provide a €3.0 billion credit lifeline to help what was once Europe’s through a crisis caused by falling sales and rising debt. That loan, convertible into Fiat stock, expires next year.