Panasonic: The Video Co. That Could Kill The Corporate Bond Lull

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Panasonic;s auto and industrial systems segment leads FY 2019 profit losses (y/y)

Moody’s said it expected Panasonic’s profitability — as measured by EBITA margin — to fall below 5% in fiscal 2019 but that it could recover to above 5% over the next few years after some restructuring. However, its margin will remain pressured compared to historical levels.

The ratings agency also said it considers the potential for Panasonic’s leverage — as measured by debt/EBITDA — to recover to around 2.0x over the next few years, from improvement in earnings and the company’s conservative financial policy.

The firm’s long-term debt shrunk by about ¥255.3bn year-on-year in FY 2019 to ¥608.8bn, amid a broader deleveraging in Japan.

Furthermore, investors’ perceptions about Panasonic’s ability to manage its financial obligations remain optimistic.

Spreads on the firm’s five-year credit default swaps (CDS) have widened by less than 3.0bps over the past three months to just south of 37.4bps.

Corporate debt deluge continues

With the Bank of Japan having established its negative interest rate policy (NIRP) at -0.1% since at least January 2016 from a previous 0.1% that persisted since December 2008 – in the wake of the housing crisis and credit crunch – the level of non-financial corporate debt in the nation continues to reside at elevated levels.

According to the Bank for International Settlements (BIS), as a percentage of gross domestic product (GDP), Japan’s non-financial corporate debt stood at about 102.6% as of December 2018 from 106.1% ten years prior. The level is still roughly 28% higher than the U.S., but 2.4%, 15.5% and 53% lower than the Euro Area, Switzerland and Sweden, respectively.

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Non-financial corporate debt still elevated after all these years.

The BIS places the country’s corporate debt at a total of around US$5.13trn at the end of December 2018 compared to about US$6.10trn at the end of 2008. 

Respite from debt issuance

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The author does not hold any positions in the financial instruments referenced in the materials ...

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