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Moody’s Clashes With R&I as Panasonic Bonds Rally: Japan Credit

Moody’s Clashes With R&I as Panasonic Bonds Rally
Moody’s cut Panasonic’s rating by two levels to Baa3 with a negative outlook after the Tokyo stock market close yesterday. Photographer: Kiyoshi Ota/Bloomberg

Panasonic Corp.’s success in persuading investors it can switch focus to intelligent appliances from loss-making televisions may help its bonds withstand a rating cut from Moody’s Investors Service.

Notes in the company, which sells fridges that send recipes and energy-use readings to smartphones, returned 5.03 percent since Nov. 8, the most among the top 50 issuers in the Bank of America Merrill Lynch Japan Corporate Index. The debt had dropped 9.21 percent after the electronics maker on Oct. 31 forecast a loss 30 times bigger than analyst estimates as TV sales slumped. Global corporate bonds declined 0.41 percent since Nov. 8, according to Bank of America Merrill Lynch data.

Moody’s cut Panasonic’s rating by two levels to Baa3 with a negative outlook after the Tokyo stock market close yesterday, saying the company will "face challenges" in improving its profitability. That followed the Nov. 15 decision by Japan’s Rating & Investment Information Inc. to change the outlook on the company’s A- rating to stable from negative because of the strength of its appliances business, leaving it at a grade that allows the debt to stay in the nation’s largest bond index.

“R&I was all that mattered ratings-wise, and that’s over,” Toshiyasu Ohashi, chief credit analyst at Daiwa Securities Co. in Tokyo, said in a telephone interview yesterday. While Moody’s rating at “one level above junk isn’t exactly reassuring, it’s probably not enough to change the market trend.”

Nomura Index

After R&I’s action, Panasonic’s notes will be able to stay in the Nomura Bond Performance index, which is tracked by some of the country’s largest investors. The index requires its members to have ratings higher than A- by at least one of four assessors including R&I. The R&I grade for Panasonic is the fourth-lowest investment score.

“Those investors who can only own bonds rated A- or higher no longer have to sell the notes immediately, and aggressive sellers are gone,” Tomone Kawachi, executive partner in Tokyo at WERU Asset Management Co., said in a telephone interview Nov. 19. “Panasonic bonds were in panic-selling mode at one point, but the market gradually regained stability.”

While Sharp Corp. and Sony Corp. battle South Korea’s Samsung Electronics Co. in the TV market, Panasonic is shifting its focus to products such as solar panels, and navigation systems and batteries for electric cars.

Sharp’s notes were ousted from the Nomura gauge in August after R&I cut its bond rating to BBB. The grade was reduced to BB by the rating company this month.

French Samurai

Elsewhere in Japan’s credit markets, Societe Generale SA narrowed the extra yield it proposed on five tranches of fixed-rate and floating-rate Samurai bonds that will price on Nov. 22, according to a person familiar with the matter. It is considering a spread of 75 to 77 basis points for five-year fixed-rate notes, said the person, who asked not to be identified because the terms aren’t final.

Teijin Ltd., an Osaka, Japan-based polyester manufacturer, hired banks for an offering of seven-year debt, according to a statement yesterday from Mitsubishi UFJ Morgan Stanley Securities Co., which is managing the deal together with Daiwa Securities Group Inc. and Nomura Holdings Inc.

Japan’s corporate bonds have handed investors a 0.14 percent loss this month, according to Bank of America Merrill Lynch data. Samurai notes, which are yen-denominated debt issued in Japan by overseas borrowers, returned 0.17 percent, while company debt worldwide lost 0.04 percent, the data show.

Default Risk

The Markit iTraxx Japan index of credit-default swaps for 50 companies fell one basis points yesterday to 184.5 basis points, the lowest since Sept. 14, according to data provider CMA, which is owned by McGraw-Hill Cos. and compiles prices quoted by dealers in the privately negotiated market. A decrease in the contracts signals improving perceptions of creditworthiness, while an increase suggests the opposite.

Yields on Japan’s benchmark 10-year government bonds rose half a basis point to 0.735 percent as of 11:06 a.m. in Tokyo, after matching a four-month low yesterday. The securities yielded 94 basis points less than similar maturity U.S. Treasuries, compared with 100 basis points a year earlier. One basis point is 0.01 percentage point.

The yen touched a seven-month low of 81.96 per dollar today in Tokyo after data showed Japan’s exports fell for a fifth-straight month in October. While the Japanese currency has weakened 6.5 percent this year, it’s 8.4 percent stronger than the five-year average, according to data compiled by Bloomberg.

Above Junk

Moody’s said the strong yen, competition from South Korean and Chinese companies and weak presence in emerging markets are hurting Panasonic’s key products. Its rating of Baa3 is one level above junk, or non-investment grade.

R&I cut Panasonic’s rating by two levels to A- on Nov. 15, saying in a statement the company is making “little progress” in improving its earnings. At the same time, it said the company’s production of household appliances will allow it to maintain a competitive advantage and generate profit. The Osaka-based manufacturer’s rating was cut by a total three levels by R&I this year, data compiled by Bloomberg show.

The extra yield investors demand to own 200 billion yen ($2.4 billion) of 0.752 percent bond due March 2016 rather than government debt fell to 149.7 yesterday from the record 329.8 basis points Nov. 8, JS Price data show. The note was priced at a spread of 19 basis points March 3 last year, according to data compiled by Bloomberg.

Panasonic’s Losses

Atsushi Hinoki, a Tokyo-based spokesman for Panasonic, declined to comment yesterday, citing the company’s policy not to comment on market movements.

Panasonic projected a net loss of 765 billion yen in the year ending March 31, it said in an Oct. 31 statement, scrapping its May forecast of 50 billion yen in income. That would be the second-highest loss in its history. Panasonic is planning to cut 8,000 jobs by the end of March.

The company’s home-appliance business contributed 81.5 billion yen to its 43.7 billion yen operating income last fiscal year, while the audio and visual products segment, which includes Viera TVs and digital cameras, lost 67.9 billion yen, according to its earnings statement.

Outstanding Debt

Panasonic has 930 billion yen of bonds outstanding, including 150 billion yen due March, according to data compiled by Bloomberg. That’s compared with Sony’s 492 billion yen and Sharp’s 395 billion yen, the data show.

The cost to insure Panasonic’s debt for five years against nonpayment rose 8.6 basis points yesterday to 315 basis points, compared with a record 506 basis points Nov. 6, according to CMA prices. The company’s stock fell 0.3 percent in morning trading today. It has dropped 38 percent this year.

“Panasonic’s bond spreads had widened even more than you’d expect if there was a three-level rating cut,” Takayuki Tezuka, a credit analyst at SMBC Nikko Securities Inc., said in a telephone interview on Nov. 19. “Realizing it was oversold, investors started buying, which brought the prices back to normal.”

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