Hankyung Credit Rating, SK Securities Downgraded to 'Negative' Outlook... "PF Burden and Profitability Weakness"

Korea Ratings downgraded the outlook for SK Securities to 'Negative' on the 6th, citing continued profitability weakness and financial soundness burdens related to real estate project financing (PF).

Korea Ratings lowered the outlook for SK Securities' corporate credit rating (A), derivative-linked bonds (A), and subordinated bonds (A-) from 'Stable' to 'Negative.' However, the individual credit ratings remain unchanged.

A 'Negative' outlook does not immediately downgrade the credit rating itself but indicates that the financial condition will be monitored over 1 to 2 years with a possibility of a downgrade.

SK Securities has been evaluated as having a decline in the three-year return on assets (ROA) and an increased ratio of selling and administrative expenses to operating net income compared to before, performing worse than other companies in the same industry. This is due to a high proportion of fixed costs in the brokerage-based commission trading structure and consecutive burdens from non-recurring expenses such as litigation reserves and financial product valuation losses.

Korea Ratings stated, "Compared to large and mid-sized firms, SK Securities has weaker retail competitiveness and continued poor performance in the brokerage segment. With the PF market shrinking, a decline in corporate finance (IB) performance is also expected, so earnings pressure will persist."

Financial soundness burdens related to real estate PF financing also contributed to the downgrade of the outlook. According to Korea Ratings, the total amount of contingent liabilities and loan receivables related to PF at the end of last year was 305 billion KRW, accounting for 50.2% of equity capital.

Korea Ratings said, "Although the quantitative burden is not large, the proportion of bridge loans is 34%, and the proportion of mezzanine and subordinated loans (which carry higher risk than senior loans) is 77%, indicating a high qualitative risk burden," adding, "We will monitor whether additional defaults occur in the future."