Sony Credit Downgraded to 'Junk'

Major credit rating agency Fitch has downgraded Sony's rating to 'junk', along with Panasonic. It has moved its rating from BBB- to BB- and maintained its Outlooks as Negative. (Bonds rated below BBB-/Baa are colloquially known as junk bonds. They are at a higher risking of defaulting and other averse credit events.) This decision strips both companies of an 'investment-grade' rating.

The decision wasn't taken lightly, according to Matt Jamieson, Head of corporate research at Fitch, who said, “This wasn’t an easy decision. But their reputations have been hit so much that it’ll take a long while to crawl back.”

The downgrading reflects Fitch's belief that Sony's recovery will be slow, "given the company's loss of technology leadership in key products, high competition, weak economic conditions in developed markets and the strong yen." But it also believes that Sony's growing weakness in the home entertainment and mobile product arenas could be offset by its "relatively stable" music and pictures divisions.

The agency predicts that Sony's operating margins for FYE13 and FYE14 will be negative or minimal, and that the future of the company in FYE15 will ultimately depend on "the success of its turnaround plan".

Back in April of this year, Sony appointed Kaz Hirai as its new CEO, who has since initiated cost-cutting measures and redundancies in an effort to turnaround the company's fortunes.

Fitch acknowledges that the company has so far taken the right measures to combat its recent decline, but there could still be a risk in how they are executed, as well as sustained competition from the likes of Samsung and Apple across almost all of Sony's key products. This could delay or derail the recovery.

“I don't think the banks will push either of these companies [Panasonic was also downgraded] to the wall,” Damian Thong, an equity analyst at Macquarie Securities in Tokyo, told the Financial Times. “But they do need to convince people that tough restructuring moves will be done in good time, while minimising unnecessary damage to healthy businesses.”

Daniel is IGN's UK Staff Writer. You can be part of the world's worst cult by following him on IGN and Twitter.

Source : ign[dot]com