S&P: Credit Outlook for Korean Companies Worsens Amid Four Major Structural Changes

International credit rating agency S&P announced on July 2 that the credit outlook for major South Korean companies has worsened this year compared to the previous year, due to structural changes such as supply glut originating from China.

Park Junhong, Managing Director at S&P Global Ratings, stated at a press conference held in Myeong-dong, Seoul on the same day, "Korean companies are facing four major structural changes: U.S. tariff policies, a slowdown in demand for electric vehicle transition, supply glut, and the rapid growth of artificial intelligence (AI)."

As of June this year, among the 39 domestic companies rated by S&P, 15% were assigned a 'negative' outlook, nearly doubling from 8% in the previous year. The 'stable' outlook accounted for 85%, a decrease of 2 percentage points. The 'positive' outlook, which stood at 5% a year ago, was not assigned to any company this year. This means that there are no companies expected to see their credit ratings upgraded.

S&P pointed out that companies with a 'negative' outlook were mainly concentrated in the petrochemical sector, which is facing risks from supply glut originating from China. Park commented, "Since Korean petrochemical companies produce a large volume of generic products, it is not easy for them to compete with Chinese companies that have strong cost competitiveness. The possibility of restructuring across the industry appears to be increasing."

In addition to supply glut from China, changes in U.S. tariff policy leading to trade conflicts, a slowdown in demand for electric vehicle transition, and the rapid growth of AI were also cited as burdens on the credit outlook for Korean companies. Park identified these as the four major structural changes and predicted that many sectors could face profitability pressures over the next one to two years.

On the same day, Kim Daehyun, Managing Director at S&P, pointed out that the recent surge in household debt and the polarized real estate market could pose risks to South Korea's financial industry. He stated, "In the future, debt risks could increase, particularly among small and medium-sized enterprises and self-employed individuals related to domestic demand," and added, "There is a possibility that soundness could deteriorate, especially among non-bank financial institutions with high exposure to domestic demand."