(Nov 15): Nissan Motor Co will have a year of breathing space in 2025 before hitting a record bond maturity wall as concerns mount about its ability to generate cash.
The automaker and its group firms have about US$1.6 billion (RM7.2 billion) of debt due next year, a slight decrease from 2024, but that figure will jump to around US$5.6 billion in 2026, the most in Bloomberg-compiled data going back to 1996. The debt due in 2026 is in yen, dollars and euros.
The deluge of bond repayments comes as the company’s debt-default insurance costs climb to peaks last reached in March 2023 and yield premiums on yen and dollar bonds have risen to the highest levels this year.
Nissan’s shares have swung wildly in recent days, tumbling after it slashed profit forecasts and 9,000 jobs, but jumping after one of the most influential activist investors in Japan took a stake in the company. In credit markets, speculation that the automaker may be cut to junk grade by more ratings firms has damaged investor sentiment. The election of Donald Trump as president also boosts the danger of the US increasing tariffs for exporters.
“Under current conditions, Nissan may become a fallen angel, and when markets are aware of such a downgrade risk, investors may require spreads pricing in such risks,” said Kentaro Harada, chief credit analyst at SMBC Nikko Securities Inc. Debt rating cuts may force Nissan out of investment-grade bond indexes, taking away funds from investors who only put their money in debt that’s included in those indices, he said.
Nissan has sufficient liquidity, with over ¥1.3 trillion in cash on a net basis in its automobile business at the end of September, said Shiro Nagai, a company spokesman. It also has committed credit facilities with major international banks to fund both automobile and sales finance businesses, with more than ¥1.9 trillion available at the end of September, Nagai said.
The company has “many sources” of funds to repay debt over the next five years including currently available liquidity, automotive cash flows, dividends from its profitable sales finance business and new debt issuance, he said. The bond data don’t include asset-backed securities, Nagai said.
Nissan has a Baa3 rating from Moody’s and BBB- from Fitch Ratings, both the lowest investment grade, while S&P ranks it BB+, the highest junk score, Bloomberg-compiled data show. All of those ratings have a stable outlook, suggesting that changes aren’t imminent.
One concern is that the company’s automotive division fell into a deficit in the April-September period in terms of cash flow that can be freely used for investments or to boost shareholder returns. The deficit of more than ¥440 billion in the six-month period was due to a decline in earnings and an increased investment burden, and the company will still need to develop next-generation technologies such as electric vehicles and autonomous driving in the coming years, the rating firm said.
Nissan also has by far the biggest borrowings relative to its earnings among Japanese automakers. Its debt-to-earnings ratio before interest, taxes, depreciation and amortisation, or Ebitda, was eight last quarter, according to Bloomberg-compiled data. That compares with 4.9 for Toyota Motor Corp, 4.7 for Honda Motor Co, and the average of 3.3 for companies in the Nikkei 225 Stock Average.
The cost to insure against debt nonpayment by Nissan rose to about 178 basis points earlier this month, the highest since March 2023, CMA data show. Only three other major Japanese companies have riskier debt in CDS terms.
Bond prices show similar moves, with Nissan Motor’s 4.81% 2030 dollar notes seeing their spreads jumping to as high as 234 basis points, marking a 50 basis-point resurgence from their lows this year. Yield premiums on 0.7% 2027 yen bonds issued by a finance unit also jumped to around 80 basis points from this year’s low of about 51 basis points, Bloomberg-compiled data show.
Adding to the worry is that in the US, one of the major markets for Nissan, the automaker is facing headwinds as President-elect Trump has said he wants to crack down on automakers building cars in Mexico by imposing tariffs higher than 200% on vehicles imported from Mexico. The country is a key manufacturing base and market for Nissan, and Trump has threatened to boost tariffs on other countries too.
“We need to be a little cautious about our outlook for the automotive industry as a whole, and companies that have had poor performances may be more prone to the impact,” said Yuta Misumi, associate director at S&P in Tokyo.
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