Standard & Poor's Ratings Services has placed its BB+ long term corporate credit and senior unsecured debt ratings on Kawasaki Kisen Kaisha Limited on CreditWatch with negative implications. This rating action is based on our view that the likelihood has increased that Kawasaki Kisen will take longer than we originally assumed to restore its financial soundness, given its deteriorating business performance in fiscal 2011 (ending March 31st 2012) and strong uncertainty over the operating environment in fiscal 2012 and beyond.
On October 3rd 2011, Kawasaki Kisen revised downward its earnings forecast for fiscal 2011, raising its expected operating losses to JPY 32 billion from JPY 5 billion, and revising its bottom-line estimate to a loss of JPY 30 billion from a profit of JPY 2 billion. The company expects to continue to incur operating losses in the second half of fiscal 2011 due to the strong yen and a prolonged downturn in container freight rates.
Standard & Poor's said that "In our opinion, the performance of Kawasaki Kisen's car carrier business is likely to improve in tandem with a full fledged recovery in output by domestic automakers. Nevertheless, the yen remains historically high, and the US and European economies are slowing. Accordingly, Standard & Poor's believes there is increased uncertainty over Kawasaki Kisen's business performance and the prospects for its cash flow in fiscal 2012 and beyond."
It added that "Standard & Poor's will remove the rating from CreditWatch after we review the prospects for recovery in Kawasaki Kisen's core businesses including its containership operations by meeting with company management and examining the measures the company will take to restore its financial soundness. We may lower the rating if we believe Kawasaki Kisen is unlikely to restore its financial soundness to a level consistent with the current rating in terms of its ratio of funds from operations to total debt and its total debt to total capital ratio, against a backdrop of an expected downturn in business in fiscal 2012 and beyond. A downgrade would be highly likely to be limited to one notch."
