Moody's Investors Service Inc. said Thursday it has downgraded its long-term debt ratings of Mitsubishi Heavy Industries Ltd. and Ishikawajima-Harima Heavy Industries Co. in response to Japan's economic slump and severe competition abroad.
The U.S. rating agency said it has cut Mitsubishi Heavy's long-term debt rating to Baa1 from A2, and has downgraded Ishikawajima-Harima's senior unsecured debt rating to Baa3 from Baa2. The rating outlook for both heavy machinery makers is stable.
The downgrades reflect Moody's expectation that ongoing weak economic conditions in the domestic market and a severely competitive environment overseas may pressure the two firms' midterm earnings and cash flow, it said.
Mitsubishi Heavy's leading position in the electric power generation market was previously a major source of income, compensating for volatile earnings in other areas, Moody's said.
"Nevertheless, as Japanese electric power companies are expected to continue sharply reducing their capital investments . . . Mitsubishi Heavy's overall earnings are likely to face downward pressure and higher volatility," it said.
As for Ishikawajima-Harima, Moody's said the firm's profitability has been under pressure due to decreasing demand from domestic public sector projects and the depressed level of private sector capital investments in the domestic market.