Research: Rating Action: Moody’s Affirms A1 Ratings of NTT and NTT Finance; stable outlook

Tokyo, July 22, 2022 — Moody’s Japan KK has affirmed Nippon Telegraph and Telephone Corporation (NTT) long-term senior secured issuer ratings of A1 and P-1. Moody’s also affirmed NTT’s Basic Credit Rating (BCA) of a2.

At the same time, Moody’s also affirmed the A1 issuer and long-term bond ratings of NTT FINANCE CORPORATION (NTT Finance).

The outlook on ratings remains stable.

A full list of affected ratings is provided at the end of this press release.

“NTT’s leverage metrics are on a moderating trend, in line with what we expected at the time of the company’s acquisition of its wireless subsidiary, NTT DOCOMO, INC. (DOCOMO) during the fiscal year ending March 2021,” said Mariko Semetko, a Moody’s Vice President and Senior Credit Officer.

RATINGS RATIONALE

Recent strong earnings moderated NTT’s debt/EBITDA to 3.0x at year-end March 2022, from 3.2x the previous year, while retained cash flow/debt improved to 23.5% versus 21.7% respectively. Moody’s includes securitization in its debt calculations.

Debt levels have remained high since the takeover, but Moody’s expects a gradual reduction as NTT uses its free cash flow to pay down debt over the next two years. NTT’s operating performance is very stable and predictable and consistently generates positive free cash flow.

NTT’s A1 issuer rating reflects a one-notch improvement from its BCA of a2. The a2 BCA is based on the company’s leading position in the telecommunications market in Japan; its advanced technological capabilities; its ability to consistently generate positive free cash flow; and a benign competitive and regulatory framework.

At the same time, NTT’s BCA reflects its relatively high leverage; geographic concentration in Japan, with approximately 80% of its consolidated sales generated in the domestic market; and moderate margin.

The Government of Japan (Stable A1) owns approximately one-third of NTT, making the company a government-related issuer under Moody’s joint default analysis approach.

NTT Finance’s A1 issuer rating is comparable to the rating of its parent company NTT and reflects the exceptional integration with its parent company’s operations and the integral finance functions it performs. A wholly owned subsidiary of NTT, NTT Finance exists solely to serve as a finance and treasury division for its parent company and has no significant stand-alone external business, which is unlike a typical captive finance company which provides sales financing to third parties.

FACTORS THAT MAY LEAD TO IMPROVEMENT OR DEGRADATION OF RATINGS

The outlook for NTT’s ratings is stable, reflecting Moody’s expectation that NTT will maintain its leadership position in its core markets and that competitive pressure to lower wireless rates at DOCOMO will not materially reduce earnings and NTT’s cash flow. The outlook also incorporates the company’s publicly announced plan to continue to reduce its buyout-related debt.

NTT Finance’s stable ratings outlook reflects NTT’s stable ratings outlook.

An upgrade to the company’s A1 issuer rating is unlikely as the rating is on par with the sovereign rating. A BCA upgrade is also unlikely until NTT’s leverage returns to pre-buyout levels, including debt/EBITDA of approximately 2x and retained cash flow/debt of approximately 35%.

Moody’s may downgrade NTT’s BCA if business risks increase, including due to an unfavorable competitive or regulatory environment. The BCA and stable outlook would be under pressure over the next 12-18 months if the company does not steadily reduce debt such that debt/EBITDA is brought sustainably below 3.0x and cash flow /retained debt continues to improve towards 25%.

Moody’s could upgrade NTT Finance’s rating if NTT’s ratings are upgraded, or downgrade NTT Finance’s rating if NTT’s ratings are downgraded. Moody’s may also consider lowering NTT Finance’s issuer rating from NTT’s issuer rating if the business model, likelihood of support, access to cash flow or Moody’s view on the strong integration of societies are changing.

The main methodologies used for the rating of Nippon Telegraph and Telephone Corporation were Telecommunications Service Providers (Japanese) published in April 2017 and available at https://ratings.moodys.com/api/rmc-documents/357583and Government-Related Issuers Methodology (Japanese) published in February 2020 and available at https://ratings.moodys.com/api/rmc-documents/66606. The main methodology used for the rating of NTT FINANCE CORPORATION was that of telecommunications service providers (Japanese) published in April 2017 and available on https://ratings.moodys.com/api/rmc-documents/357583. Otherwise, please see the Scoring Methodologies page on https://ratings.moodys.com for a copy of these methodologies.

Nippon Telegraph and Telephone Corporation, headquartered in Tokyo, is Japan’s leading integrated telecommunications operator. The Japanese Ministry of Finance owns approximately one-third of NTT and the company is governed by the NTT Law.

LIST OF AFFECTED RATINGS

Issuer: Nippon Telegraph and Telephone Corporation

…Long-term issuer rating, confirmed A1

…Long-term issuer rating (local currency), confirmed A1

…Senior secured regular bond/debenture (local currency), confirmed A1

…Commercial Paper (Local Currency), Confirmed P-1

…Basic Credit Assessment (BCA), Confirmed a2

…Outlook, Remain stable

Issuer: NTT FINANCE CORPORATION

…Long-term issuer rating (local and foreign currency), confirmed A1

…Senior regular unsecured bond/debenture (foreign currency), confirmed A1

…Senior Regular Unsecured Bond/Debenture Backed (Foreign Currency), Confirmed A1

…Outlook, Remain stable

REGULATORY INFORMATION

For details on key rating assumptions and Moody’s sensitivity analysis, see the Methodological Assumptions and Sensitivity to Assumptions sections in the Disclosure Form. Moody’s rating symbols and definitions can be found at https://ratings.moodys.com/rating-definitions.

For ratings issued on a program, series, category/class of debt or security, this announcement provides certain regulatory information regarding each rating of a subsequently issued bond or note of the same series, category/class of debt, security or under a program for which ratings are derived exclusively from existing ratings in accordance with Moody’s rating practices. For ratings issued on a media provider, this announcement provides certain regulatory information relating to the credit rating action on the media provider and each particular credit rating action for securities whose credit ratings are derived from the support provider’s credit rating. For the provisional ratings, this press release provides certain regulatory information relating to the provisional rating assigned, and to a final rating that may be assigned after the final issuance of the debt, in each case where the structure and conditions of the transaction n have not changed prior to the final rating being assigned in a way that would have affected the rating. For more information, please see the issuer/transaction page of the respective issuer at https://ratings.moodys.com.

For all relevant securities or rated entities receiving direct credit support from the lead entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action , the associated regulatory information will be that of the guarantor entity. Exceptions to this approach exist for the following information, if applicable to the jurisdiction: Ancillary services, Information to be provided to the rated entity, Information to be provided by the rated entity.

The ratings have been communicated to the rated entity or its designated agent(s) and issued without modification resulting from such communication.

These notes are solicited. Please refer to Moody’s Policy for the Designation and Assignment of Unsolicited Credit Ratings available on its website. https://ratings.moodys.com.

The regulatory information contained in this press release applies to the credit rating and, if applicable, the outlook or rating revision relating thereto.

Moody’s general principles for assessing environmental, social and governance (ESG) risks in our credit analysis are available at https://ratings.moodys.com/documents/PBC_1288235.

The worldwide credit rating on this credit rating announcement has been issued by one of Moody’s affiliates outside the EU and is approved by Moody’s Deutschland GmbH, An der Welle 5, Frankfurt am Main. -le-Main 60322, Germany, in accordance with Article 4(3) of Regulation (EC) No 1060/2009 on credit rating agencies. Further information on the EU approval status and the Moody’s office that issued the credit rating can be found at https://ratings.moodys.com.

The worldwide credit rating on this credit rating announcement has been issued by one of Moody’s affiliates outside the UK and is approved by Moody’s Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the United Kingdom. . Further information on the UK endorsement status and the Moody’s office that issued the credit rating can be found at https://ratings.moodys.com.

Please see https://ratings.moodys.com for any updates on changes to the lead rating analyst and Moody’s legal entity that issued the rating.

Please see the issuer/transaction page at https://ratings.moodys.com for additional regulatory information for each credit rating.

Mariko Semetko
VP – Senior Credit Officer
Corporate Finance Group
Moody’s Japan KK
Atago Green Hills Tower Mori 20fl
2-5-1 Atago, Minato-ku
Tokyo, 105-6220
Japan
JOURNALISTS: 81 3 5408 4110
Customer service: 81 3 5408 4100

Mihoko Manabe
Associate General Manager
Corporate Finance Group
JOURNALISTS: 81 3 5408 4110
Customer service: 81 3 5408 4100

Release Office:
Moody’s Japan KK
Atago Green Hills Tower Mori 20fl
2-5-1 Atago, Minato-ku
Tokyo, 105-6220
Japan
JOURNALISTS: 81 3 5408 4110
Customer service: 81 3 5408 4100

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