S&P Cuts L-T Outlook on Asahi Glass to Negative

Standard & Poor's Ratings Services said on Thursday that it had revised the outlook on its long-term corporate credit rating on Japan's Asahi Glass Co Ltd (Tokyo:5201.

T - News) to negative from stable, reflecting concerns over the company's ability to improve its financial profile to a level adequate for the current rating category.At the same time, Standard & Poor's affirmed its 'A-' long-term and 'A-2' short-term ratings on Asahi Glass.Asahi Glass's operating profitability has been weak over the past few years, due to its high cost structure and its poor performance in non-glass businesses such as commodity chemicals.The restructuring measures taken by the company, including plant closures in Japan, have not been sufficient to remedy these problems."Although Asahi Glass intends to reduce debt from peak levels over the next few years through free cash flow and asset sales, the prospects for a significant improvement in its key credit measures remain weak, given the slow pace of its restructuring efforts thus far," said Makiko Yoshimura, a credit analyst at Standard & Poor's in Tokyo.

Asahi Glass's financial profile is significantly weaker than that of other Japanese corporates in the 'A' rating category.

Funds from operations to total debt has averaged less than 20 percent and total debt to capital close to 50 percent over the past few years, compared with median ratios of over 30 percent and less than 35 percent, respectively, for Japanese corporates in the same rating category.

"The rating could be lowered if Asahi Glass fails to demonstrate steady progress in its restructuring efforts and a strong improvement in its financial profile," said Ms. Yoshimura.

Asahi Glass is one of the world's largest flat-glass manufacturers, competing with France-based Compagnie de Saint-Gobain S.A. and UK-based Pilkington PLC. The current rating on the company is supported by its leading position in the traditional global sheet and automotive glass markets, as well as the growing display glass market.

Asahi Glass's broad range of glass products and geographical diversification mitigate the impact of weakness in individual industries and regions.

For example, lower profitability in the company's float glass operations in Japan -- resulting from its high cost structure and less value-added product mix -- has been offset by solid profits in Europe and Asia.

Asahi Glass has a strong position in flat display panels, which are likely to become a bigger profit contributor for the company in the future.

To further improve its position in this area, Asahi Glass plans to increase its production capacity, as well as its use of float technology, which it regards as the optimum means of production for large flat display panels.

600450 S&P Cuts L-T Outlook on Asahi Glass to Negative glassonweb.com
Date: 7 February 2003
Source: Glass Digest Magazine

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