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Sony credit downgraded by Standard and Poor's

Company reduced to BBB+, poor outlook means further drop possible

Benchmark credit rating service Standard and Poor's has reduced Sony's rating from A- to BBB+, warning that only the unlikely event of an upturn in the next 6-12 months would save the rating from dropping further.

S&P's identified falling prices, falling demand and tough competition as the major factors affecting the company's chances of swift recovery.

"The outlook on the long-term corporate credit rating is negative," read a statement detailing the changes. "We base the downgrade on our view that severe circumstances in Sony's mainstay electronics businesses make a strong recovery in earnings unlikely.

"We base the negative outlook on the long-term corporate credit rating on our expectation that we could lower the ratings further if we see no meaningful sign of a recovery in Sony's earnings within six to 12 months."

Whilst the short-term forecast for Sony was bleak, based largely on the difficult conditions faced in the TV and smartphone markets, S&P's do see the company recovering long-term.

"Because of continuing net losses since fiscal 2008, Sony's profitability looks significantly weaker than that of its global industry peers. In addition, we believe its ratio of adjusted debt to EBITDA is likely to remain high for the next one to two years, even for companies in the 'BBB' category. Standard & Poor's also believes Sony's adjusted total debt to capital (excluding finance operations) will rise to around 40% as of March 31, 2012, from 35% a year earlier.

"However, we base our one-notch downgrade on our view that Sony's profitability and financial standing will gradually recover in fiscal 2012 because there will be no repeat of one-off expenses due to floods in Thailand and impairment losses on stockholdings. Also, we believe Sony's strong short-term liquidity (excluding finance operations) continues to support its financial stability."

In its last financial report, Sony predicted losses of 220 billion for the year.

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