Poor Performance and COVID-19... Credit Ratings of Leading Companies Downgraded One After Another (Comprehensive)

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[Asia Economy Reporter Koh Hyung-kwang] The credit ratings of leading domestic companies are being downgraded one after another. Following a sharp deterioration in performance due to last year's economic downturn, this year has seen the added impact of the novel coronavirus disease (COVID-19) pandemic, resulting in a persistently negative business environment. The prolonged COVID-19 situation has led to a contraction in the Chinese economy and poor corporate performance, raising concerns that corporate credit ratings will be downgraded like dominoes, a fear that is now becoming a reality.

According to industry sources on the 23rd, global credit rating agency Moody's downgraded Emart's credit rating from 'Baa3' to 'Ba1' on the 21st. Ba1 is the 11th rating overall and falls under speculative grade. Moody's maintained a 'negative' outlook after the downgrade, leaving room for further credit rating reductions.

This reflects the fact that the recently worsened financial condition is unlikely to improve in the near term. Emart's operating profit last year was 151 billion KRW, a 67% decrease compared to the previous year. At the end of last year, borrowings were about 7 trillion KRW, an increase of approximately 2.3 trillion KRW compared to the end of 2018 (about 5.7 trillion KRW).

Additionally, Moody's changed Lotte Shopping's credit rating outlook from 'stable' to 'negative' on the same day. Baa3 is the lowest among the 10 investment-grade ratings. One step below is speculative grade, indicating that Lotte Shopping could soon be pushed into speculative grade. Since profitability is unlikely to recover in the short term and the spread of COVID-19 is expected to have a negative impact on the business environment, Moody's warned of the possibility of a credit rating downgrade.

On the 17th, Korea Ratings downgraded LG Display's unsecured bond credit rating from 'AA- (negative)' to 'A+ (stable)'. The main cause was the worsening business conditions due to the economic slowdown. Korea Ratings judged that LG Display's profitability and financial structure are unlikely to improve significantly in the short term.

On the same day, Standard & Poor's (S&P) downgraded KCC's credit rating from 'BBB-' to 'BB+'. Considering that investment-grade ratings go up to BBB, this effectively pushed KCC into speculative grade.

Earlier, on the 10th, NICE Credit Rating downgraded LG Display's credit rating from 'AA-' to 'A+'. The credit outlook remained 'negative'. On the 11th, NICE also downgraded Emart's credit rating from 'AA+' to 'AA'. On the same day, Moody's lowered LG Chem's credit rating from 'A3' to 'Baa1'. The downgrade was attributed to weak demand, oversupply leading to weak petrochemical product prices, and slow profitability improvement in the battery business division.

On the 6th, Moody's downgraded SK Innovation and SK Comprehensive Chemical's credit ratings from 'Baa1' to 'Baa2', citing "poor performance and the downturn in the Chinese economy due to COVID-19" as reasons. This was the first time COVID-19 was directly mentioned in the credit evaluation of domestic companies.

In addition, CJ CheilJedang, Green Cross, Korea Aerospace Industries, HDC Hyundai Development Company, CJ CGV, OCI, and others also have a 'negative' credit rating outlook, meaning their ratings could be downgraded soon. Even companies with the highest domestic credit rating (AAA), such as SK Telecom, Hyundai-Kia Motors, Hyundai Mobis, Hyundai Steel, and SK Hynix, have received a 'negative' credit rating outlook from Moody's.

Professor Shin Se-don, emeritus professor of economics at Sookmyung Women's University, said, "Even the U.S., which is in a boom, is experiencing sluggish production and investment, and the Chinese economy, on which Korea heavily depends, is clearly losing growth momentum due to the COVID-19 situation. As a result, Korea's economic growth rate is expected to continue to slow down," adding, "This is why major domestic companies are facing the risk of credit rating downgrades."