S&P raises Asahi Glass rating to A/A-1

The outlook on the ratings is stable.

At the same time it raised its short-term rating on the company's US-based subsidiary, Asahi Glass America Inc, and it’s rating on AGA Capital Inc's CP program to 'A-1' from 'A-2'.

"Asahi Glass's overall profitability and cash flow have substantially improved as a result of progress in structural reform and an increase in profits from growing businesses," said Standard & Poor's credit analyst, Makiko Yoshimura.

In the sheet glass market, Asahi Glass enjoys strong competitiveness and a solid customer base as one of the top glassmakers in the world. Profitability from the company's sheet glass business is improving as a result of its cost reduction efforts, which include benchmarking comparisons at production facilities globally, as well as technology transfers between the facilities. In the Japanese market, the company has made progress in structural reforms, changing to a more high-value-added product mix. Such efforts have enhanced the stability of the company's business performance.

The display glass business is making an increasing contribution to Asahi Glass's overall profit, generating about 50% of operating profit. The company's major display products enjoy large shares in overseas markets, backed by the company's strong technology and customer base. In response to a sharp rise in demand for glass displays, the company is planning to make aggressive capital investments. Given the high technological hurdle for entering the display glass manufacturing business, there are only a limited number of competitors in the market, so the company should be less vulnerable to fluctuations in demand than display panel makers. The company is expected to cover the growing price pressures through cost-reduction efforts, and revenue from its display glass business should grow in the next few years.

In the chemicals business, the positive results from Asahi Glass's restructuring efforts have supported profitability, and the growth in high-value-added products has driven improvement in earnings. Even though the market price of commodity-type chemical products in Asia may be in decline, the company's revenues are not likely to drop as much as they did in the past.

Asahi Glass has been aggressively reducing its debt, and Standard & Poor's expects the company to maintain the ratio of funds from operations to cash flow at about 40% for the next few years. Furthermore, Asahi Glass's large planned capital investments will be within the company's internal cash flow, and the debt-to-capital ratio, which stood at 40% as of December 31, 2004, is likely to continue improving, given an expected accumulation of capital.