Fri, May 02, 2003 - Page 10 News List

Moody's may cut Sony's rating on profit fears

BLOOMBERG , TOKYO

A Sony employee displays the company's new 5-mega pixel DSC-V1 digital camera yesterday. Moody's investors Service warned it may cut Sony's credit rating.

PHOTO: AFP

Sony Corp's credit rating may be cut for the first time in at least 17 years by Moody's Investors Service on concern the world's second-largest consumer-electronics maker may struggle to regain its past profitability.

Moody's placed Sony's Aa3 long-term unsecured senior debt rating under review for a possible cut. The rating is the fourth highest of Moody's 10 investment-grade levels. Sony's Prime-1 rating is unaffected, Moody's said in its report.

Sony's shares have slumped by about a quarter since Thursday last week when the company said its fourth-quarter net loss widened to Japanese Yen 111.1 billion (US$934 million) -- almost triple the estimates of some analysts. Sony's operating loss at its electronics business more than doubled in the period after pressure to cut prices and reorganization costs squeezed earnings.

"Moody's is always a lagging indicator," said Alex Muromcew, who helps manage US$600 million in stocks globally as a fund manager for Loomis Sayles and Co in San Francisco. "After a 26 percent drop in two days, all the bad news is priced in and more."

Moody's will examine how quickly Sony's electronics business can return to profit and whether Sony's other businesses can sustain the consumer-electronics maker's earnings.

Sony's 1.52 percent bonds due in 2011 yesterday yielded 0.596 percent, or 11 basis points more than similar maturing Japanese government bonds, according to Bloomberg data. The risk premium, or extra yield over government debt investors demand to hold the bonds, has narrowed from 15 basis points since the beginning of the year. A basis point is 0.01 percentage point.

The review affects about US$10.7 billion in combined yen and dollar debt, Moody's said. Moody's, which began keeping data on Sony's rating in October, 1985, confirmed the consumer-electronic maker's current Aa3 debt rating in December, 1993 after placing it on review four months earlier.

"The rating action reflects Moody's concern that Sony may take longer than expected to regain the strong profit and cash flow generation patterns seen before," the ratings company said in a statement.

The maker of the PlayStation 2 video-game console expects net income to tumble by more than half to ?50 billion this fiscal year. That would be less than a third the ?179 billion in net profit Sony earned in the fiscal year ended March 1999, even though sales have grown by about 10 percent since then.

One of the biggest drags on Sony's performance is its electronics business, which accounted for about 66 percent of the company's overall sales in the year ended March 31.

This fiscal year, the producer of Wega televisions and Clie hand-held computers expects lower sales and lower profit from electronics, partly because of costs to revamp the money-losing business. The company also expects the stronger Japanese currency to pressure earnings.

Sony generates about 70 percent of its sales outside Japan.

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