Korea Investors Service Downgrades Korea Rental's Credit Rating to A3-

Korea Investors Service has downgraded the short-term bond and commercial paper credit ratings of Korea Rental from A3 to A3-.

According to Korea Investors Service on December 22, the reasons for the downgrade include: ▲ declining profitability due to sluggish operating performance in the domestic rental sector and increased fixed and financial costs; ▲ deterioration of financial stability resulting from the burden of group support and business expansion; and ▲ continued expectations of heavy financial burdens.

First, Korea Investors Service pointed out, "Within the domestic rental segment, the underperformance of aerial work platforms, measuring instruments, and imaging equipment continues," adding, "Despite the decline in utilization rates of rental assets, operating expenses such as depreciation remain high, and a recent surge in borrowings has led to increased interest expenses, weakening the company's ability to service interest payments."

While the recent increase in the proportion of installment sales is expected to improve accounting-based operating results, Korea Investors Service analyzed that this is due to accounting characteristics and is unlikely to lead to a substantial improvement in actual cash generation in the short term.

Korea Investors Service also highlighted that Korea Rental's financial stability has significantly deteriorated due to the burden of supporting its parent company, Dream Security, and increased funding needs for new business investments. On a standalone basis, Korea Rental's borrowings rose sharply from 180.3 billion won at the end of 2023 to 307.5 billion won at the end of September this year. Over the same period, the debt ratio soared from 152% to 276%.

Finally, Korea Investors Service stated, "Korea Rental is investing in rental assets at a scale equivalent to its annual EBITDA to maintain its business base," and added, "With capital expenditures increasing due to recent interest and dividend payments, the ongoing burden of recurring rental asset investments is constraining cash flow, and heavy financial pressure is expected to persist for the time being."

Korea Investors Service plans to closely monitor trends in the profitability of new rental businesses and the burden of financial support for the parent company going forward.