International credit ratings agency Moody's has announced that it is reviewing the world's second biggest steelmaker Japan-based Nippon Steel & Sumitomo Metal Corp.’s (NSSMC) credit rating for downgrade after NSSMC’s recent announcement of its intended investment in Nisshin Steel Co., Ltd as well as plans for capital injection into Vallourec S.A. and a material share buyback, amid a current challenging operating environment.
Moody's estimates these investments and the share buyback will amount to around JPY 200-250 billion of cash outflow in total. In addition, due to the full consolidation of Nisshin Steel following successful completion of its acquisition, Nisshin Steel's existing debt of around JPY 280 billion will be added to NSSMC's balance sheet further raising its consolidated leverage. While Moody's recognizes that NSSMC's strategic activities will likely benefit the company in the long-term, it nevertheless remains concerned over the rapid deterioration in NSSMC's financial profile as a result of these announced initiatives.
According to Moody’s statement, the review will focus on the impact of the announced initiatives including the acquisition of Nisshin Steel on the company's credit profile, including any synergy benefits; NSSMC's plans for and ability to recover its financial profile amid the expected protracted volatile and challenging market conditions; and NSSMC's financial policies and appetite for further similar debt-funded initiatives.