S&P Downgrades Nippon Steel Amid Financial Strain from U.S. Steel Acquisition

TOKYO, Japan – Global rating agency S&P downgraded Nippon Steel to ‘BBB’ from ‘BBB+’ with a ‘negative’ outlook on July 17. The downgrade arises from increasing financial pressure following Nippon Steel’s recent acquisition of U.S. Steel.

S&P cited concerns about Nippon Steel’s financial stability, predicting it will remain weak for the next one to two years due to debt accumulation and significant investments in U.S. Steel’s assets. “We believe that the negative effects of the increased financial burden will far outweigh the positive effects of the company’s expansion,” S&P stated.

To fund its $14.9 billion acquisition, Nippon Steel plans to raise 800 billion yen ($5.4 billion) through two subordinated loans, which will also refinance previous debts. The acquisition, finalized in June after an 18-month struggle with U.S. government approval, includes $14 billion for investments, notably $4 billion for a new steel mill.

This move is vital for Nippon Steel’s global expansion strategy, aiming for a production capacity of 100 million tons of crude steel. Demand for high-grade steel, which is Nippon Steel’s specialty, is increasing in the U.S. amidst rising global trade tensions. In contrast, demand in Japan is declining.

Following the downgrade announcement, Nippon Steel shares dropped 0.87% in Tokyo, underperforming the overall Nikkei index, which rose by 0.6%. Investors are closely monitoring the effects of the acquisition as economic conditions fluctuate.