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Fitch affirms Daimler's long-term issuer default rating


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Fitch affirms Daimler's long-term issuer default rating

Fitch Ratings on May 21 affirmed Daimler AG's long-term issuer default rating, or IDR, at A- and upgraded the German carmaker's short-term IDR to F1 from F2, citing the company's strong business profile and robust credit metrics.

The ratings also apply to Daimler's senior unsecured notes, as well as the group's subsidiaries, including Daimler Canada Finance Inc., Mercedes-Benz South Africa Ltd., Daimler International Finance BV, Daimler México SA de CV, Daimler Finance North America LLC, Mercedes-Benz Australia/Pacific Pty Ltd, Mercedes-Benz Japan Co. Ltd., Mercedes-Benz Finansman Türk Anonim Sirketi and Mercedes-Benz Finance Co. Ltd.

In addition, Fitch also removed Daimler from Under Criteria Observation, where it was placed on May 2.

The rating agency said Daimler's business profile is strong and its credit metrics is robust despite increasing pressure on profitability and cash generation. The company's growing number of investments are weighing on earnings and free cash flow, while unit sales growth momentum is decelerating, reflecting a weakening macro environment, Fitch said.

Still, Fitch said Daimler maintains a strong net cash position and that its adjusted funds from operations gross leverage remain low for the ratings.

The agency noted that Daimler is at risk of changes or indications of potential future changes in global tariffs because of its material share of imports in total Chinese sales, including almost 10% from the U.S. Fitch said Daimler's flagship brand Mercedes-Benz's significant share of sales in the U.K., China and the U.S. makes it heavily exposed to a potential hard Brexit and renewed commercial tensions between the U.S., China and Europe.

In Europe, Fitch forecasts that the carbon emissions target set for 2020/2021 in the region could be critical for Daimler. The company could miss targets and lose "a few hundred million euros" as a result of accelerating decline in diesel entry in Europe and still limited electric vehicle penetration, the agency said.

Meanwhile, the agency said it expects Mercedes-Benz's increasing investments in new technologies, including electric and autonomous vehicles, to weigh on its profitability. Fitch added that it expects incoming CEO Ola Källenius to refocus on cost cutting and efficiencies and drive recovery of profitability from 2021 onward. It was earlier reported that the CEO-elect considers slashing administration costs by 20% in order to reach profit margin targets.