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Renault S.A. Rated 'BBB+' By Fitch IBCA

11 June 1999

Renault S.A. Rated 'BBB+' By Fitch IBCA

    PARIS/LONDON/NEW YORK--June 11, 1999--Renault S.A.'s (Renault's) senior debt obligations are rated `BBB+' by Fitch IBCA. Renault Credit International's (RCI) long-term rating is affirmed at `A-` and its short-term debt at `F1'; this subsidiary's obligations are not guaranteed or supported by Renault. This is Fitch IBCA's initial rating for the parent company.
    The rating reflects Renault's decisive earnings turnaround, propelled by successful new products and substantial cost takeouts, which have strengthened its profitability and credit profile. In 1998, Renault's manufacturing operations achieved record EBITDA of FRF 28.6 billion, as against total manufacturing debt of FRF 9 billion, indicating debt leverage of 0.3 times, among the lowest in the industry. To enhance its competitiveness, Renault continues to take out costs, renew its product range, and maintain product spending at competitive levels. Importantly, the company has funded its product program from internal cash flows, and Fitch IBCA expects this trend to continue.
    These strengths are tempered by concerns, which center around the heightened competition in Renault's main Western European market, exacerbated by chronic industry assembly overcapacity and price erosion.
    Uncertainties also surround the execution risk and potential returns from Renault's alliance with Nissan Motor Co. Ltd., in which it invested US$5 billion for a 36.8% equity interest in May 1999, and another US$460 million to purchase Nissan's European receivables portfolio and a 22.5% investment in Nissan Diesel Ltd. This alliance carries both substantial risks and potential returns for both companies. Renault funded these investments by invading its strategic cash reserves and with borrowed funds. Thus, even though Renault embarked on this alliance from a position of financial strength, the investment has depleted its liquidity and limits its financial flexibility over the near term.
    Renault, headquartered in Paris, France, is a major mass market passenger car producer. The company also produces and sells commercial vehicles under the Renault badge in Europe and Mack marque in North America. RCI, a wholly owned subsidiary which holds a French bank charter, conducts the Group's sales finance activities. The Republic of France currently owns 44.2% of Renault's outstanding shares.