Securities analysts have concluded that recent credit issues in the petrochemical and construction sectors-including Yeocheon NCC’s liquidity challenges, on-site fatalities at POSCO E&C and DL Construction, and the government’s consideration of strong countermeasures-are having only a limited impact on the overall credit market.
Kim Gimyeong, a researcher at Korea Investment & Securities, stated in his report “The Ripple Effects of Recent Credit Issues” on August 14, “If these issues had arisen in sectors where risks were not anticipated, it would have necessitated a comprehensive review of credit risks across the entire sector, potentially spreading shock throughout the credit market. However, since these issues occurred in sectors where caution already existed, the likelihood of them affecting the broader credit market is limited.”
First, regarding Yeocheon NCC, Kim pointed out, “DL Chemical and Hanwha Solutions each hold a 50% stake, resulting in a shareholding structure that may lack responsible management.” He added, “After Hanwha Solutions decided to provide financial support at the end of July, DL Group-which had previously been at odds with Hanwha Group-also shifted its stance to support, significantly increasing the likelihood of resolving the liquidity crisis.”
He explained, “While the shareholder composition’s vulnerability is a cause of the liquidity crisis, if market conditions had been favorable, joint decision-making among shareholders might not have diverged in the first place. Fundamentally, as the structural problems of the sluggish petrochemical industry remain unresolved and persist, the weakest link has broken first.”
He continued, “Most petrochemical companies producing general-purpose products have experienced at least one downgrade or had their rating outlook revised to ‘negative.’ They may not be immune to further downgrades. As a result, market caution toward the petrochemical sector is expected to intensify.” However, he also noted, “If the long-stalled restructuring of the petrochemical sector accelerates in response to Yeocheon NCC’s liquidity issue, and production capacity is reduced to match domestic demand, the performance of the remaining companies could improve in the long term.”
Jung Heemin, President of POSCO E&C, is offering apologies to officials before delivering a statement regarding the consecutive on-site fatal accidents at the Incheon Songdo headquarters on the 29th of last month. President Lee Jae-myung mentioned and criticized the fact that workers died due to consecutive industrial accidents at POSCO E&C sites this year during his opening remarks at the Cabinet meeting that morning. Photo by Yonhap News
Regarding fatal accidents, Kim predicted that risk perception in the construction sector will become more differentiated by company. He said, “If permanent disqualification from bidding and financial sanctions for companies with repeated industrial accidents are actually institutionalized, the level of risk outside the expected range for bond investments in high-risk sectors such as construction could rise excessively,” emphasizing the need for ongoing monitoring.
He added, “As safety management is strengthened, additional costs due to project delays could weigh on profitability. Construction companies with a high proportion of regional sites in their scheduled projects or PF guarantees will not be free from downward rating pressure.” In contrast, he projected, “Top-tier construction companies with a large share of redevelopment projects in Seoul and the metropolitan area and strong financial capacity may see limited downward rating pressure.”
Accordingly, it is expected that this series of issues will not affect the overall credit market. Kim explained, “These sectors have already experienced prolonged periods of poor performance or heightened sector risk. Major bond investors are believed to have minimized exposure for risk avoidance or focused on issues with no problems regarding fundamental principal and interest repayment capacity.”
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