Sony on Review for Moody's Downgrade

Moody's MCO has put Japanese electronics maker Sony SNE on review for a possible downgrade from its Baa 1 long–term senior unsecured bond and issuer rating, according to the Wall Street Journal. Also put on watch was the company's Prime-2 short-term debt. “Baa 1 is the third lowest among Moody's 10 measures of long term investment grade and Prime-2 is in the middle of the three short-term investment scales,” reported Bloomberg Sony's first-quarter earnings report last Thursday showed a wider-than-expected loss, reflecting higher restructuring charges. The Moody's debt ratings review on Sony took into account this loss, as well as a sharp decline in television sales and slow-down in world economy. The recent strength in the Yen against other major currencies also played into the Monday ratings review. Standard & Poor's Rating Services lowered the electronic giants long-term debt rating in February from A- to triple B plus, two notches shy of junk status. S&P attributed the negative outlook on weakness in the firm's television division, seeing “no meaningful sign of recovery”. Moody's further concluded that lower margins on two of Sony's major product components, TV and mobile communication, reflect low and volatile earnings. In addition, Sony announced in its earnings release, that it was cutting its net profit for the year by a third. Analysts at Nomura restated its neutral rating on Sony in a research note to investors, reported The Daily Political last Friday. Analysts at Morgan Stanley downgraded shares of Sony from “overweight” to “equalweight” In July. Also, Citicorp downgraded Sony from buy to neutral rating in a note to investors in June. Sony shares have declined by nearly half since March, plummeting from around $21.69 to $11.53. Panasonic, another consumer electronics company PC, has also been struggling recently, declaring restructuring and job cuts in an attempt to reverse last year's record loss. This past Friday, Sharp Corp. SHCAY another beleaguered Japanese electronics maker, has had its short term debt downgraded by Moody's from P-2 to P-3. The investor's service cited weak operating performance and high restructuring expenses for the lower rating. Japanese consumer electronic companies have tremendous headwinds going forward. Restructuring their corporate debt, under the duress of sinking bond ratings and the strong value of their currency against other competitor nations, leaves these companies particularly vulnerable to slow or potentially negative revenue growth for the foreseeable future.