Bangkok--Jul 26--Fitch Ratings
Fitch Ratings (Thailand) Limited has today downgraded the National Long-term rating of DaimlerChrysler (Thailand) Limited’s (“DCT”) THB3.0 billion guaranteed debentures due 2006 and THB2.0bn guaranteed debentures due 2007 to ‘AA(tha)’ from ‘AA+(tha)’. Fitch’s rating actions follow a revision of DaimlerChrysler AG’s (“DCX”, rated ‘BBB+’) Outlook to Stable from Positive (see announcement dated 19 July, 2005 on www.fitchresearch.com).
DCT’s National rating is based entirely on the full, irrevocable and unconditional guarantee on the debentures by DCX. As the ‘BBB+’ rating for DCX is now two notches below Thailand’s Long-term local currency rating of ‘A’ Outlook Stable, (upgraded in May 2005) the Outlook revision of DCX to Stable prompts a rating downgrade of the National rating of DCT’s guaranteed bonds to be two notches below Thailand’s sovereign National rating of ‘AAA(tha)’.
Fitch notes that any change in the international rating differential between guarantors and the Thai sovereign could have an impact on National ratings of MNC-guaranteed bonds. As National ratings are by definition a ranking of relative creditworthiness, and in Thailand's case the sovereign is defined to be ‘AAA(tha)’, sovereign and guarantors’ rating actions automatically prompt a review of rating relativities to ensure their continuing accuracy. In addition, investors should note that one-notch change in the International rating could result in greater-than-one notch change in the National ratings.
Fitch has changed Outlook on DCX to Stable from Positive reflecting the view that, given the recent performance of Mercedes Car Group (“MCG”) and competitive pressures at the Chrysler Group (“CG”), an upgrade of the ratings for DCX is unlikely in the short term. While the MCG had been the stabiliser of the group’s credit profile since its formation in fiscal 1998, this division has recently faced a number of quality issues, and seen restructuring and increasing operating losses at its Smart division and higher expenses related to new product introductions. Meanwhile, despite significant improvement in profitability at the CG resulting from attractive product introductions and improved market share, new product competition and pricing pressures are likely to affect profitability over the intermediate term. Pricing pressures and transplant capacity expansion will continue to limit margin expansion and could neutralise at least parts of the operational improvements achieved at the CG so far.
All these developments have affected the positive momentum assessed at DCX during fiscal 2004. As a result, Fitch does not see the potential for a rating upgrade within the original time frame envisioned. A key focus over the near term will be how MCG addresses its quality issues and the performance of important new product introductions.
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