Moody's Downgrades LG Chem and LG Energy Solution Credit Ratings... Heightened Tension in Secondary Battery Industry

Downgraded from Baa1 to Baa2
Rising Debt from Facility Expansion and Concerns over Profitability

Global credit rating agency Moody's has downgraded the credit ratings of both LG Chem and its subsidiary LG Energy Solution by one notch each. With domestic credit rating agencies also preparing for their year-end regular credit assessments, there is growing unease across the chemical and secondary battery industries.

According to the financial investment industry on November 17, Moody's recently lowered LG Chem's credit rating from 'Baa1' to 'Baa2.' This marks another downgrade in less than a year since it was reduced from A3 to Baa1 in December last year. The credit rating for LG Energy Solution was also changed to 'Baa2,' the same as LG Chem. Baa2 is equivalent to 'BBB' by other major global credit rating agencies, such as Standard & Poor's (S&P) and Fitch.

Moody's explained that this decision reflects the increased debt from battery facility expansions in recent years, as well as profitability pressures caused by oversupply in both the petrochemical market and the electric vehicle (EV) battery market.

Moody's expects LG Chem's adjusted net debt-to-EBITDA ratio to rise from 3.3 times last year to between 3.4 and 3.7 times this year and next year. However, the outlook for the rating remains 'stable.'

LG Chem holds a 79.4% stake in LG Energy Solution, and the two companies are closely linked in terms of business operations, resulting in their creditworthiness being closely tied. Moody's also noted that its rating analysis focused primarily on LG Chem's consolidated financial statements.

This downgrade is also expected to negatively impact domestic credit rating agencies' year-end assessments. Although LG Chem's domestic credit rating remains at 'AA+,' the outlook is still 'negative,' leaving the possibility of a downgrade unless there is an improvement in the business environment. Given that many companies in the chemical industry have a 'negative' outlook, a series of credit downgrades could follow.