Moody's Japan KK has assigned a A3 rating to domestic bonds issued by JFE Holdings Inc. The rating outlook is stable.

This is a takedown from the company's JPY 300 billion domestic shelf registration effective July 7th 2011, which is rated (P)A3.

The specific bond issues rated are:

JPY 20 billion Series 18 bonds, due 2016
JPY 15 billion Series 19 bonds, due 2018

The A3 rating on JFE's long term debt reflects the company's leading position, due to its high grade steel products and their significant market shares, as well as the company's advanced technological expertise, hence, its product competitiveness. The rating also incorporates JFE's prudent financial policy and improving balance sheet.

The rating additionally takes into account JFE's stable relationships with its major banks, which contributes to its financial flexibility and provides ratings uplift of two notches, similarly to other leading Japanese companies.

Its ratings could be pressured upward if it can improve its financial profile to a level consistent with an A2 rating. This would involve raising its operating margin to about 10%, and lowering adjusted debt EBITDA to well below 2.75 x and adjusted debt capitalization to about 40%, all on a sustained basis for a cyclical industry.

However, JFE's rating will face downward pressure if profitability declines below current levels or if leverage deteriorates again. If its operating margin remains well below 5%, adjusted debt EBITDA remains above 3.5 x, and adjusted debt capitalization rise well beyond 50% on a sustained basis for a cyclical industry, Moody's may consider downgrading the rating.