Junk status: Crushing blow for troubled Japanese giants

Published on 23/11/2012 00:00

TWO former titans of Japan’s faltering technology sector have been “junked” by a leading credit ratings agency amid concerns about their ability to compete in rapidly-evolving markets.

Panasonic was cut by two notches to BB while Sony suffered a three-notch downgrade to BB-minus by Fitch, leaving both brands below the investment grade rating they previously enjoyed. In Fitch’s view, the companies have the flexibility to make repayments on their debt in the short-term, but are vulnerable to defaulting over time.

Fitch said both consumer electronics groups faced a long list of challenges, one of the foremost being a loss of technology leadership to rivals such as South Korea’s Samsung and Apple of the US. Both have been riding high on booming sales of smartphones and tablet devices.

The strength of the yen – which makes Japanese products more expensive in overseas markets – was also cited. Another factor was difficulties faced in China, where growth has slowed and Japanese goods have been targeted by consumer protests.

Both companies have struggled recently to generate operating profits, and Fitch believes their future hinges upon wide-ranging and aggressive restructuring.

The move comes just weeks after Panasonic revealed that it is heading for an annual loss of more than £6 billion for the second year running. The company will be forced to write off billions in tax-deferred assets related to its mobile phone, solar panel and lithium battery businesses.

“The downgrade reflects Panasonic’s weakened competitiveness in its core businesses, particularly in TVs and panels, as well as weak cash generation from operations,” Fitch said in a statement.

“It also reflects the agency’s view that the company’s financial profile is not likely to show a material improvement in the short to medium-term.”

Sony posted its seventh consecutive quarterly net loss during the three months to September, but is predicting a small profit for the full year to break its string of annual losses over four consecutive years.

Fitch said the prospects for any “meaningful recovery” at Sony – maker of PlayStation games consoles and Vaio laptops – were uncertain given the company’s “loss of technology leadership in key products, high competition, weak economic conditions in developed markets and the strong yen”.

KRISTY DORSEY