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Investing.com -- S&P Global Ratings has placed the credit ratings of NTT Corp. on CreditWatch with negative implications. This decision was reached following the announcement by NTT Corp. on May 8, 2025, of their intention to conduct a tender offer for NTT Data Group, a listed subsidiary, at a cost just under ¥2.4 trillion. The intention is to make NTT Data Group a wholly owned subsidiary.
The funds for the tender offer are expected to be raised through debt, which may have a negative financial impact that could outweigh the potential positives for the company’s operations. The negative implications of the CreditWatch placement are based on the potential deterioration of NTT’s key cash flow indicators if the tender offer is completed as planned.
The company intends to raise all necessary funds for the purchase through bridge loans from banks, later switching to long-term funds. NTT also plans to implement measures to alleviate its financial burden, which include asset sales. However, S&P Global Ratings estimates that the company’s debt-to-EBITDA ratio, a key cash flow indicator, will deteriorate from 2.7x at the end of March 2025 to the low-3x range after the completion of the tender offer.
Despite the company’s pledge to maintain financial soundness while continuing to make growth investments and shareholder returns, S&P Global Ratings does not expect NTT’s key cash flow indicators to return to a clear recovery path for a year or two after the tender offer. If spending is expected to increase further, S&P Global Ratings may consider the company’s financial management to be less conservative.
NTT’s strong relationships with major banks and its status as one of the world’s leading telecommunications companies will likely continue to allow it to raise significant amounts of money from major banks at favorable interest rates, even under financial stress. The impact of rising interest rates globally on the company’s financial profile is expected to be limited.
S&P Global Ratings does anticipate that NTT has the potential to enhance management efficiency on a companywide basis to some degree. This is due to the expectation that NTT will strengthen the coordination of resources within the group to bolster its IT services business, expedite decision-making, and reduce costs on a groupwide basis.
However, the positive impact of the tender offer on NTT’s overall business competitiveness and cash flow generation capacity could be limited. The creditworthiness of NTT Data Group has already been factored into the credit ratings on NTT on a consolidated basis as it was an important consolidated subsidiary before the tender offer.
The CreditWatch placement will be resolved soon after the outcome of the tender offer is declared, if it concludes successfully on June 19, 2025. Upon resolution of the CreditWatch placement, S&P Global Ratings will scrutinize the degree of financial burden caused by the tender offer, as well as the content and plausibility of mitigation measures. They will also examine the outlook of its operating performance and its financial management policies. If the tender offer proceeds as planned and if it is judged that key cash flow indicators will deteriorate broadly in line with estimates, S&P Global Ratings is highly likely to downgrade the long-term issuer credit ratings on NTT by one to two notches.
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