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Investing.com -- S&P Global Ratings has revised its outlook on Marubeni Corp. to positive from stable, and affirmed the ’BBB+’ long-term issuer credit rating and ’A-2’ short-term issuer credit rating for the company on February 19, 2025. The rating agency also confirmed the ’BBB+’ issue credit rating on Marubeni’s senior unsecured debt.
The improved outlook is based on the potential for Marubeni to generate a stable net profit of about ¥500 billion per year, including fiscal 2024 (ending March 31, 2025), and beyond, by strengthening its nonresource business portfolio. The company’s financial health is expected to improve faster due to conservative financial management and a steady accumulation of profits.
Marubeni’s net profit is likely to remain around its current high level, thanks to effective measures to boost profits in nonresource businesses such as agriculture, food, and wholesale and retail power trading. These sectors are expected to generate more than ¥300 billion in annual profit on a stable basis.
The company is also expected to record a net profit of about ¥500 billion annually on a company-wide basis for one to two years from fiscal 2024 due to the aggressive replacement of unprofitable assets. Nearly 30% of Marubeni’s profits are generated by its operations in North and Central America, making it less likely to be adversely affected by U.S. tariffs.
Marubeni has strengthened its risk management system following significant losses in the operations of its U.S. grain merchandiser and feed producer Gavilon and its resource business in fiscal 2019. The company has reduced new investment in risky resources and commodities, focusing instead on additional investment and capital expenditures in existing businesses. This approach limits the possibility of a significant impairment loss in the next one to two years.
Marubeni’s capital adequacy is expected to improve faster than previously assumed. The company is likely to maintain a surplus of free cash flow (FCF) after shareholder returns by carefully selecting investments and aggressively selling assets under its new medium-term management strategy from fiscal 2025.
Marubeni’s adjusted capital is likely to remain above the level of risk assets required under the ’A’ stress scenario over the next one to two years. The company’s capital adequacy ratio was around 100%-110% in fiscal 2023, slightly low among Japanese general trading and investment companies.
The positive outlook reflects the expectation that Marubeni’s adjusted capital will remain above the level of risk-based capital required under the ’A’ stress scenario. This is based on the assumption that the company’s net profit will remain strong at around ¥500 billion, and it will maintain a conservative financial policy in the coming one to two years.
S&P Global Ratings may consider an upgrade if the company controls growth in risk assets while maintaining positive FCF after shareholder returns under continued conservative financial discipline, and if the company’s return on risk-weighted assets becomes more likely to stay above 20%.
Conversely, the agency may consider revising down the outlook to stable if the company’s return on risk-weighted assets approaches 15% due to a decrease in net profit to below ¥400 billion, or if the company’s capital adequacy ratio falls below 100% under the ’A’ stress scenario due to a worsened balance between adjusted capital and risk-based capital.
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