DBRS Upgrades Ratings of Nissan Motor Co., Ltd. to “A” from A (low), Trend Now Stable

DBRS Limited (DBRS) upgraded the long-term ratings of Nissan Motor Co., Ltd. (Nissan or the Company) and its subsidiary, Nissan Canada Financial Services Inc., to “A” from A (low). Concurrently, DBRS confirmed the Commercial Paper ratings of Nissan Canada Financial Services Inc. at R-1 (low). The trend on the long-term ratings has been changed to Stable from Positive. The (long-term) ratings upgrade considers the Company’s solid business risk assessment as a global automotive original equipment manufacturer (OEM) with a meaningful presence in all major automotive markets, further bolstered by the Renault-Nissan-Mitsubishi Alliance (the Alliance). DBRS also acknowledges that the Company’s financial risk assessment (FRA) is commensurate with the newly upgraded ratings, notwithstanding a moderate softening in Nissan’s recent earnings performance (as anticipated by DBRS), with credit metrics remaining at strong levels as a result of the Company’s very conservative financial policy.

Nissan’s fiscal 2017 (F2017, ending March 31, 2018) worldwide sales increased by 2.6% year over year (YOY) to 5.77 million units, driven primarily by strong growth in China and supplemented by volume increases in Japan; these gains were partly offset by declines in North America and Europe. Nissan’s operating profit for F2017 (adjusted to exclude special items associated with the vehicle inspection issue and Takata airbags) was weaker compared with F2016, mainly attributable to a decline in earnings in North America, reflecting lower sales volumes and exacerbated by higher marketing expenses associated with dealer inventory adjustments. Moreover, in Q1 F2018, the Company increased its efforts in reducing (typically less profitable) fleet volumes and sales incentives in the United States, resulting in a material decrease in volumes relative to Q1 F2017. However, sales performance has remained solid in China, where Nissan increased its market share by 0.6% to 5.6% in calendar 2017. Earnings from the Chinese joint venture also improved materially YOY, albeit equity accounted and therefore not included in operating income.

DBRS notes that while Nissan’s growth and earnings momentum in China are expected to persist in F2018, the Company continues to face headwinds in the U.S. market in line with the ongoing planned reduction in fleet volumes. Moreover, as with all OEMs, Nissan is facing North American trade/tariff challenges and uncertainty associated with Brexit. DBRS observes, however, that the Company’s geographic production footprint is quite diverse and allows the Company to implement some requisite changes in response to any adverse shift in trade policies. DBRS deems the overall impact to be manageable.

DBRS does not anticipate any further changes in the ratings, which are underpinned by Nissan’s BRA; conversely, the Company’s FRA has some cushion to absorb a moderate deterioration in earnings.

Notes:
All figures are in Japanese yen unless otherwise noted.

The principal methodologies are Rating Companies in the Automotive Manufacturing and Supplier Industries, DBRS Criteria: Guarantees and Other Forms of Support, and DBRS Criteria: Commercial Paper Liquidity Support for Non-Bank Issuers, which can be found on dbrs.com under Methodologies.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link under Related Documents or by contacting us at info@dbrs.com.

This rating was initiated at the request of the rated entity.

The rated entity or its related entities did participate in the rating process for this rating action. DBRS had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

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