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Moody’s late on Tuesday cut its credit rating on Renault to Ba1 after the company last week posted its first loss in a decade.

Regis Duvignau/Reuters

Renault’s shares fell on Wednesday after Moody’s cut its rating on the French carmaker’s debt to “junk” status, citing weaker profitability as the company restructures and grapples with falling demand.

The shares were down 1.9% at 0942 GMT, among the worst performers on Paris’ benchmark CAC-40 index. They earlier fell 2.3% to €30.2 ($43.12) a share, their lowest since mid 2012, when auto manufacturers were still reeling from the global financial crisis and recessions in Europe.

Like some rivals, and its Japanese alliance partner Nissan, Renault is under pressure as demand dwindles in markets like China. It is also bedding down a new management team after a scandal surrounding former boss Carlos Ghosn.

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Moody’s late on Tuesday cut its credit rating on Renault to Ba1 after the company last week posted its first loss in a decade, in a move that will likely add to financing costs.

Fellow rating agency Standard & Poor’s said on Wednesday it was placing Renault on CreditWatch Negative, meaning it could also revise its investment grade BBB- rating downwards.

Renault last week set an operating margin goal for this year at between 3% and 4%, down from 4.8% in 2019, and forecast further declines in the global auto market.

Moody’s said it did not expect Renault to return to “healthy” operating margin levels in the medium term, and highlighted other challenges the carmaker has in common with peers, including high investments to produce less polluting vehicles.

“The cost to comply with CO2 regulation in the European Union and the ongoing electrification of Renault’s fleet will have further dilutive effects on profitability,” Moody’s said.

Brokerage Jefferies cut its share price target for Renault to €28 ($39.98) from €38 ($54.26).

“Renault is set to remain income poor for a while,” it wrote, keeping an “underperform” rating on the stock.

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Renault’s interim Chief Executive Clotilde Delbos is embarking on a sweeping review of the carmaker which could lead to factory closures and job cuts.

Luca de Meo, a former Volkswagen executive, is due to take on the CEO job in July, in the latest management rejig after Ghosn was arrested in late 2018 in Tokyo on financial misconduct charges, which he denies. Ghosn has since fled to Lebanon.

Delbos stressed last week that Renault had no issues with cash availability, in response to a January report by Citi analysts who said cash flow was strained and the carmaker might need some form of equity injection.

Delbos said Renault’s automotive operational free cash flow would be positive in 2020 after stripping out restructuring costs.

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