Sony Debt Worth Buying Post Expected Ratings Cut, BNP Says

By Finbarr Flynn and Tesun Oh 

Sony Corp. (6758) may reward investors if they wait to buy its bonds after an expected ratings downgrade, BNP Paribas SA said.
The Japanese consumer-electronics maker widened its net loss forecast on Sept. 17 and said it won’t pay an annual dividend for the first time since its listing in 1958. Standard & Poor’s indicated it may cut the company’s rating to non-investment grade.
Sony “needs to concentrate on its good points like semiconductors, and they have very good financial divisions, such as Sony Life Insurance and Sony Bank,” said Mana Nakazora, BNP’s chief credit analyst for Japan. “I don’t think they’re close to default but of course they’re faced with very big difficulties.”
Nakazora, the nation’s top-ranked credit analyst from
2010 to 2012, doesn’t recommend buying any of Sony’s some $4.2 billion-equivalent of bonds outstanding now. Instead, she recommends investors wait until the company outlines a restructuring plan, and ratings companies downgrade it. Then, “we need to buy,” she said in an interview in Tokyo yesterday.
Sony Chief Executive Officer Kazuo Hirai has been working to turn the company around by emphasizing entertainment, computer games and mobile devices as demand for televisions and compact cameras declines. He said this week it would post a net loss of 230 billion yen ($2.1 billion) this fiscal year because it’s writing down the value of its faltering smartphone business.

Photographer: Noriyuki Aida/Bloomberg

Kazuo Hirai, Chief Executive Officer of Sony Corp., has been working to turn the... Read More

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Sony also won’t pay a dividend this year after outlaying 25 yen a share last year, Hirai said, adding his “No. 1 responsibility” is to reinstate the payment. Shares in Sony plunged the most in more than three years in Tokyo yesterday before closing down 8.6 percent at 1,940 yen, the lowest in a month. It was at 1,921 yen today.
While Hirai’s presentation skills are similar to those of Carlos Ghosn -- the Renault SA chairman famed for turning around unit Nissan Motor Co. after years of losses -- he’s disappointed investors and not delivered on promises, according to Nakazora. Successive losses have kept investors wondering “‘Is this the bottom?’, but we have no confidence,” she said.
Earnings assumptions at Sony’s mobile business are “likely to decrease substantially,” S&P said in a statement yesterday. “The negative impact on consolidated earnings and financial ratios for the company is likely to be larger than we are able to incorporate in the current rating.” S&P currently rates Sony at BBB-, its lowest investment grade.

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The wider loss stems from the fact Sony is taking a 180 billion yen impairment charge because it expects less cash from its smartphone business, Sony said in a statement. It’s cutting about 1,000 workers from the 7,100 strong division, and reducing the number of mid-range models as Chinese producers gain market share, Hirai said.
Japan Credit Rating Agency Ltd., which rates Sony at A, also put the company on review for downgrade. Sony is already rated below investment grade by Moody’s Investors Service and Fitch Ratings Ltd.
A loss of 230 billion yen this year would be Sony’s sixth in seven years. The company’s total losses over that period have already totaled $8.7 billion.
The spread on Sony’s 45 billion yen of 0.664 percent bonds due March 2017 climbed to 48.2 basis points, the highest in a year, Bloomberg-compiled prices show. That compares with a high of 142.8 basis points in December 2012.
Sony’s cash flows are “good compared to other electronics companies” and that’s a key advantage, Nakazora said. “I think the ratings agencies should downgrade Sony,” she said. “We need to wait until then.”