S&P downgrades Nippon Steel to ‘BBB’ on debt strain from US Steel deal

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TOKYO (Reuters) -Global rating agency S&P downgraded Nippon Steel to ‘BBB’ from ‘BBB+’ with a ‘negative’ outlook on Thursday, citing an increasing financial strain following the Japanese steelmaker’s acquisition of U.S. Steel last month.

The downgrade reflects concerns over Nippon Steel’s financial position, which S&P expects to remain weak over the next one to two years due to debt-raising efforts and large-scale investments into U.S. Steel assets.

“We believe that the negative effects of the increased financial burden will far outweigh the positive effects of the company’s expansion and strengthened geographic diversification of its earnings base in the growing North American market,” S&P said.

Nippon Steel plans to raise 800 billion yen ($5.4 billion) through two subordinated loans to partially fund the deal and to refinance previous loans.

In June, Nippon Steel closed its $14.9 billion acquisition of U.S. Steel after an 18-month struggle to obtain U.S. government approval for the deal, which faced scrutiny due to national security concerns.

The acquisition involves $14 billion in new investments, including $4 billion for a new steel mill.

The deal is key to Nippon Steel’s global growth strategy and its goal of 100 million tons of global crude steel production capacity. The U.S. steel market, including demand for high-grade steel – Nippon Steel’s specialty – is growing amid rising global trade tensions, whereas demand in Japan is falling.

Nippon Steel shares closed 0.87% down in Tokyo on Thursday, weaker than the overall Nikkei index, which was up 0.6%.

($1 = 148.6900 yen)

(Reporting by Katya Golubkova; Editing by Jacqueline Wong)