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The proposed integration between Nissan and Honda will benefit Nissan more from a credit perspective, while Honda faces more risk due to its stronger credit profile after the business integration efforts between both automobile companies, according to Moody's Ratings.
Nissan Motor Co Ltd and Honda Motor Co Ltd on December 23 inked a memorandum of understanding (MoU) to begin talks and considerations for a business integration between the two businesses through the creation of a joint holding business. The report noted that Nissan will benefit the most from a credit perspective, while Honda faces more risk due to its stronger credit profile. "The proposed Honda-Nissan business integration is overall credit positive if executed successfully. We believe that a larger scale through integration will result in stronger credit quality, particularly for Nissan, which currently has significantly weaker credit metrics than Honda," the Dean Enjo, VP-Senior Analyst, Moody's Ratings stated. He stated that the integration would allow the automakers to share research and development (R&D) costs, which will be beneficial for the introduction of new electrified powertrain models in regions such as China. Additionally, the integration could help mitigate the potential effects of increased tariffs on imports to the US and enhance product diversification for Nissan, given Honda's higher-margin motorcycle business, he stated. Enjo stated that given that Honda's margins are smaller in its automobile business than in its motorbike industry, execution risk is particularly severe. As a result, it has less freedom to acquire Nissan's auto division, which is presently undergoing significant reorganisation and suffering losses. "The JPY1.1 trillion buyback announced by Honda for its own shares is credit negative for Honda as it will erode its liquidity or credit metrics depending on the amount of cash or debt it uses to fund the buyback," he further added. Baking its analysis, the report added that compared to Honda, Nissan would benefit more from the integration. Because of its better track record of consistent profit and cash flow, management approach, and diversification into motorcycles in addition to cars, Honda has better credit. Motorcycle margins are far greater than car margins. Furthermore, the expansion of the motorbike industry is more exposed to rapidly expanding emerging markets like those in ASEAN and India than it is to the established car markets on which Nissan depends. Electrification also poses far less of a threat to motorcycles, the report added. (ANI)
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