11-D-0683
November 22, 2011
JCR Revised Outlook to Negative on Nippon Paper Group &
Nippon Paper Industries
Japan Credit Rating Agency, Ltd. (JCR) announces the following credit rating.
Rationale
(1) Nippon Paper Group, Inc. is a pure holding company of Nippon Paper Group. It has five directlyowned subsidiaries - Nippon Paper Industries Co., Ltd. for paper, Nippon Daishowa Paperboard
Co., Ltd. for paperboard, Nippon Paper Cresia Co., Ltd. for family care products, Nippon Paper
Papylia Co., Ltd. for specialty paper, and Shikoku Coca-Cola Bottling Co., Ltd. for soft drinks. It
raised its stake in Lee & Man Paper Manufacturing Limited in August this year to make the
Chinese company its equity-method investee company. JCR incorporates the creditworthiness of
the entire Group into the ratings on Nippon Paper Group, Inc. and Nippon Paper Industries Co.,
Ltd. because of the group companies' strong unity in management.
(2) Domestic demand for paper, especially printing, writing and business communication paper, has
been stagnant due in part to structural factors including shift to electronic media from papers. On
the other hand, domestic demand for corrugated paperboard is comparatively solid, as cargo
transportation is recovering. The industry has succeeded in a price hike for both paper and
paperboard to some extent. With paper accounting for a relatively high percentage in its total
revenue, the Group faces a share decline because its mainstay Ishinomaki Mill in Miyagi
Prefecture suffered from a significant damage in the Great East Japan Earthquake. The restoration
of the mill is included in the Group’s revitalization plan announced in August. The plan also calls for
a 15% reduction in production capacity and workforce for the paper business. Production lines with
an annual capacity of 800,000 tons will be gradually closed and about 1,300 jobs will be cut, which
is expected to help earnings improve by about 25 billion yen.
(3) The Group will be supported by the price hike for paper and paperboard in the year ending March
2012, but sales volume inevitably declines due to the damage on Ishinomaki Mill. It will book 25.4
billion yen in one-time amortization of the good will in equity-method investment loss to cover Lee
& Man Paper Manufacturing’ share price decline, which will result in a big fall in the full-year
ordinary profit. The Group will likely post a net loss for two consecutive years, as it will book
extraordinary loss for the disaster and also for facility/job curtailment. It is expected to post a net
profit in the following year, as the revitalization plan will make progress, including Ishinomaki Mill’s
restoration, and the price hike will contribute.
(4) The Group’s financial structure will certainly deteriorate, as the loss-making operation damages
equity capital and the Ishinomaki Mill restoration will increase capital investment. The Group plans
to strive to reduce interest-bearing debts by improving earnings and reducing inventory assets, but
it is likely to take some time for the financial structure to improve.
(5) The Group's mainstay paper business has been suffering from domestic demand decline and
increasing pressure from imports owing to a stronger yen. It faces difficult maneuvering to balance
paper price hike and share recovery. While the Group has been expanding overseas operation
mainly through M&A, its contribution to the entire revenue is limited so far. Recent loss-making
operations and increasing investments have deteriorated financial structure, which will likely take
time to recover. JCR considers it necessary to pay attention on the progress and achievement of
the Group's revitalization plan and whether the paper price hike penetrates enough. At this
moment, JCR revised outlook on the Group to "Negative" from "Stable," without changing the
ratings.
Rating
Issuer: Nippon Paper Group, Inc. (3893)
<Outlook Change>
Senior debts: A+
<Affirmation>
Issues
bonds no.6
bonds no.8
Outlook: Negative (from Stable)
Amount (bn)
Y20
Y13
Issue Date
Apr. 25, 2005
Mar. 27, 2007
Due Date
Apr. 25, 2012
Mar.27, 2017
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Coupon Rating
1.10% A+
1.97% A+
bonds no.9
Y10
May 25, 2007
May 25, 2017
bonds no.10
Y10
Dec. 21, 2009
Dec. 20, 2019
bonds no.11
Y15
Dec. 9, 2010
Dec. 9, 2020
All issues are guaranteed by Nippon Paper Industries Co., Ltd.
1.96% A+
1.71% A+
1.495% A+
Issuer: Nippon Paper Industries Co., Ltd.
<Outlook Change>
Senior debts: A+
Outlook: Negative (from Stable)
Outline of the method for the determination of the credit rating is posted as "Rating Methodology (Corporate)" on JCR's
home page (http://www.jcr.co.jp). The rating methodology is subject to additions and changes. In such cases, however,
these additions and changes are shown in chronological order. Please check the release date of this press release against
that of the rating methodology (i.e., the date when such methodology became effective) and then refer to the rating
methodology above.
Japan Credit Rating Agency, Ltd.
Jiji Press Building, 5-15-8 Ginza, Chuo-ku, Tokyo 104-0061, Japan
Tel. +81 3 3544 7013, Fax. +81 3 3544 7026
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