DBRS Morningstar Confirms Renault S.A. at BBB, Stable Trends

DBRS Limited (DBRS Morningstar) confirmed the Issuer Rating and Senior Unsecured Debt rating of Renault S.A. (Renault or the Company) at BBB. The trend on the ratings remains Stable. The confirmation reflects the Company’s sound business risk assessment (BRA) as an original equipment manufacturer with an established market position in Europe and whose competitive position is strengthened by the alliance (substantially) with Nissan Motor Co., Ltd. (Nissan; rated A (low) with a Negative trend by DBRS Morningstar) and Mitsubishi Motors Corporation (Mitsubishi; collectively, the Alliance). DBRS Morningstar notes, however, that while the Alliance benefits Renault in terms of synergies and in various strategic areas, the companies’ (i.e., Renault and Nissan) respective ratings are not closely linked.

Renault’s financial performance in 2019 has moderated with ongoing efficiency gains being more than offset by lower sales volumes and weaker product mix and pricing (partly reflecting the Company’s product cadence and continued decline in diesel vehicle sales). Moreover, Renault, as with most of its industry peers, faces cost headwinds in the form of alternative powertrain development (i.e., the progressive electrification of its product portfolio) and emissions regulatory costs, with emissions compliance in Europe becoming notably more burdensome from 2020 onward. DBRS Morningstar also notes that Renault, as primarily a mass-market automotive manufacturer, has limited ability to offset such cost increases in the form of higher pricing.

While the above-cited headwinds (in addition to lower anticipated dividends from Nissan) result in a softening of the Company’s credit metrics, DBRS Morningstar notes that Renault’s financial risk assessment (FRA) remains well commensurate with the assigned ratings. Moreover, global automotive sales, notwithstanding their decline from record volumes, are nonetheless estimated to remain at reasonable levels, with Renault likely outpacing the industry in its core European market on the strength of its recent and forthcoming product launches. Finally, the Company appears to be well positioned to participate in the industry’s progressive transition toward electric vehicles (EVs) as the Alliance is the global mass-market leader in EVs.

DBRS Morningstar sees limited upside potential to the ratings over the near term, as the aforementioned projected increases in product development and emissions compliance costs are likely to constrain margins in the immediate forthcoming years. Conversely, markedly higher regulatory costs than currently anticipated (i.e., the incurrence of consequential CO2 fines) and/or a significant downturn in the European market could adversely affect the ratings. Finally, DBRS Morningstar notes that Renault’s BRA benefits from the Alliance. Moreover, the Alliance results in significant synergies and cost efficiencies, the absence of which would likely undermine the Company’s earnings and, ultimately, its FRA. As such, any meaningful unwinding of the Alliance could result in negative rating implications.

Notes:
All figures are in euros unless otherwise noted.

The principal methodologies are Rating Companies in the Automotive Manufacturing and Supplier Industries (October 2019) and DBRS Morningstar Criteria: Rating Corporate Holding Companies and Parent/Subsidiary Rating Relationships (November 2019), which can be found on dbrs.com under Methodologies & Criteria.

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 [email protected].

The rating was not initiated at the request of the rated entity.

The rated entity or its related entities did not participate in the rating process for this rating action. DBRS Morningstar did not have access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

This rating is endorsed by DBRS Ratings Limited for use in the European Union. The following additional regulatory disclosures apply to endorsed ratings:

Each of the principal methodologies employed in the analysis addressed one or more particular risks or aspects of the rating and were factored into the rating decision. Specifically, DBRS Morningstar used Rating Companies in the Automotive Manufacturing and Supplier Industries as the primary rating methodology in determining the rating of parent company Renault S.A. Subsequently, DBRS Morningstar Criteria: Rating Corporate Holding Companies and Parent/Subsidiary Relationships was applied to assess the corporate structure of the Renault group of companies.

The last rating action took place on November 30, 2018, when DBRS Morningstar confirmed the ratings of Renault S.A. at BBB with a Stable trend.

Solely with respect to ESMA regulations in the European Union, this is an unsolicited credit rating. This credit rating was not initiated at the request of the issuer.

This rating did not include participation by the rated entity or any related third party and is based solely on publicly available information.

For further information on DBRS Morningstar historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see: http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml.

Lead Analyst: Robert Streda, Senior Vice President, Autos
Rating Committee Chair: Charles Halam-Andres, Industrials & Natural Resources, Global Corporates
Initial Rating Date: November 27, 2000

DBRS Morningstar will publish a full report shortly that will provide additional analytical detail on this rating action. If you are interested in receiving this report, contact us at [email protected].

For more information on this credit or on this industry, visit www.dbrs.com or contact us at [email protected].

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