Bloomberg News

Sony Rating Cut by Fitch on Losses From TVs, Acquisitions

December 16, 2011

(Updates with Sony’s comment in fifth paragraph.)

Dec. 15 (Bloomberg) -- Sony Corp., Japan’s biggest consumer-electronics exporter, had its rating cut to one level above junk by Fitch Ratings, which cited difficulties reviving a money-losing TV business and deals that won’t improve profit.

The long-term ratings were slashed to “BBB-” from “BBB,” Fitch said in a statement today. That is the last of the 10 investment grades by the ratings company, which also slashed Sharp Corp.’s rating to BBB-, citing increasing competition in the TV market.

Fitch assigned a negative outlook to Sony and said a further downgrade by one level is likely within two years, according to the statement. Chief Executive Officer Howard Stringer has announced $8.4 billion of acquisitions this year as the Tokyo-based maker of Bravia TVs and Walkman music players tries to compete with Apple Inc. while forecasting a fourth consecutive loss, a first since it began trading in 1958.

“Sony’s balance sheet has worsened,” said Ichiro Takamatsu, a portfolio manager at Tokyo-based Bayview Asset Management Co., which manages about $2 billion. “Sony is pressed to rebuild its business model, as televisions are no longer a cash cow. The company needs to develop something innovative that can integrate its software like Apple.”

Former Position

Satsuki Shinnaka, a Tokyo-based spokeswoman for Sony, declined to comment, citing the company’s policy not to comment on a third-party evaluation.

Sony’s investments to take full control of its mobile-phone venture with Ericsson AB and acquiring EMI’s publishing business won’t improve profitability in the short term, Fitch said. The operating environment for Sony is likely to remain tough because of weak demand from developed markets, a stronger yen, floods in Thailand and the aftermath of Japan’s March earthquake, it said.

“The downgrade reflects Sony’s weakened financial performance and the agency’s belief that the company will face challenges in recapturing its former strong position in key markets,” Nitin Soni, an associate director at Fitch, said in the statement.

Sony had 377 billion yen of bonds and 364 billion yen of long-term borrowings as of March 31, according to its financial statement.

The company needs to pay or refinance 358 billion yen of debts next year, according to data compiled by Bloomberg. That will decrease to 241 billion yen the following year, the data show.

Credit-Default Swaps

Credit-default swaps insuring Sony’s debt against non- payment rose to 151.3 basis points yesterday from 49.1 basis points at the start of the year, according to data provider CMA, which is owned by CME Group Inc. and compiles prices quoted by dealers in the privately negotiated market.

Credit-default swaps protect bonds against default and traders use them to speculate on credit quality. A drop signals improving perceptions of creditworthiness.

Sony shares fell 1.5 percent to 1,345 yen in Tokyo trading today, taking their year-to-date loss to 54 percent. By comparison, Apple shares have gained 18 percent this year.

Last month, Sony predicted a fourth consecutive annual loss of 90 billion yen in the year ending in March 2012, reversing an earlier forecast for a profit of 60 billion yen, citing worsening demand for TVs. Sony is the world’s No. 3 TV maker behind Samsung Electronics Co. and LG Electronics Inc.

Sony also lowered its annual sales target for TVs, personal computers, compact cameras and Blu-ray DVD players last month.

Last month, Standard & Poor’s put Sony’s “A-” long-term ratings on review for a possible downgrade, saying there are no signs of a halt to the deterioration in earnings at the TV operations.

Moody’s Investors Service said in October it was considering lowering its “A3” rating for Sony after the company said it would buy out Ericsson’s stake in their venture for 1.05 billion euros ($1.5 billion).

--With assistance from Naoko Fujimura in Tokyo and Tim Culpan in Taipei. Editors: Anand Krishnamoorthy, Michael Tighe.

To contact the reporter on this story: Mariko Yasu in Tokyo at myasu@bloomberg.net

To contact the editor responsible for this story: Michael Tighe at mtighe4@bloomberg.net


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