Credit Rating Agencies Lower Lotte Corporation's Rating from AA-
Downgrade of Subsidiary Lotte Chemical Affects Overall Grade
Stability Restored... Limited Impact on Market Expected
On June 30, Korea Ratings and other credit rating agencies downgraded Lotte Corporation's senior unsecured bond credit rating by one notch from AA- (Negative) to A+ (Stable). This reflects the adjustment of the credit rating for Lotte Chemical, a Lotte Group chemical affiliate, from AA0 (Negative) to AA- (Stable).
Lotte Corporation's credit rating is evaluated by applying the combined weighted ratings of its four subsidiaries: Lotte Chemical, Lotte Shopping, Lotte Wellfood, and Lotte Chilsung. Although the rating calculated through the combined weighted average of these four companies is AA-, due to the structural subordination of the holding company, Lotte Corporation received a one-notch lower rating of A+.
Previously, in June of last year, Lotte Corporation's rating outlook was changed to negative, and the company had already raised funds in the market at the adjusted rating. The company expects that the market impact of this latest rating adjustment will be limited.
Lotte Corporation plans to actively pursue financial improvement measures based on a stable outlook, now that unstable factors have been resolved. Although an increase in funding costs due to the credit rating adjustment is inevitable, the company anticipates that any rise in interest expenses will be limited, taking into account the recent trend of base interest rate cuts. Lotte Corporation also stated that its immediately available cash, deposits, and unused credit lines exceed KRW 1 trillion, ensuring sufficient liquidity.
Lotte Corporation views positively the accelerated asset-light strategy and business restructuring underway at Lotte Chemical, which has a significant impact on its credit rating. While Lotte Chemical continued to post losses in the first quarter, its operating loss improved by more than KRW 100 billion compared to the previous quarter.
Earlier, in June, Lotte Chemical secured approximately KRW 97.9 billion by selling its water treatment membrane production plant and by disposing of its entire 75.01% stake in LCPL, a Pakistan-based PTA production and sales subsidiary, during the first half of this year. In March, it also sold its 4.9% stake in the Japan-based company Resonac for KRW 275 billion. Lotte Chemical raised a total of about KRW 1.3 trillion by entering into price return swap (PRS) contracts for some shares in its Indonesian and U.S. subsidiaries. In addition, LUSR, a synthetic rubber manufacturing company based in Malaysia, was liquidated.
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