Renault no longer weak link in its alliance with Nissan

BLOOMBERG

The role of the squeaky wheel in Renault and Nissan’s alliance looks to be changing in a remarkable example of what a difference a year makes.
One year ago, Renault shares hit rock bottom in a rout triggered by the invasion of Ukraine. Fitch Ratings was sounding alarm bells about the carmaker’s exposure to Russia, then its No. 2 market after France. Within a matter of weeks, Renault made a costly exit.
Now Nissan is the one making credit raters nervous. S&P Global Ratings cut the carmaker to junk, calling its sales and profitability weak for the last several years and unlikely to improve anytime soon. Renault, by contrast, notched a rating upgrade and outlook boost last month from Fitch and S&P, respectively.
Renault flipped the script by taking its medicine and quickly changing the subject. The company transferred its majority ownership of AvtoVaz, Russia’s biggest carmaker, to the state for one ruble and then began ginning up excitement about bold plans to carve itself up and list its electric vehicle assets.
The radical effort to shake up a company that will turn 125 years old this year has paid big dividends for Chief Executive Officer Luca de Meo. It helped Renault and its biggest shareholder — the French state — get comfortable with paring its Nissan stake, addressing a power imbalance and source of simmering tension that boiled over with Carlos Ghosn’s shock arrest in November 2018.
In January, the two companies settled on a framework deal: Renault would give up a substantial chunk of its Nissan stake through coordinated and orderly sales that are likely to reap billions of euros in proceeds.  It also convinced its Japanese counterpart to become a strategic shareholder in the EV and software business it’s hoping to take public as soon as the second half this year.
Nissan is getting what many insiders long sought: to be on equal footing with Renault and restore its voting rights. But analysts suspect the Japanese company will end up having to pay up for this détente — it’s seen as a likely buyer for some of its own shares that Renault will sell off.
S&P is comfortable with the amount of cash Nissan has on hand. The credit rater’s concerns have more to do with its expectation that supply chain disruptions, high costs, rising interest rates and a global economic slowdown will stifle carmakers for the next year or two.