NICE Investors Service Downgrades SK Advanced's Rating Outlook to 'Negative'

On December 24, NICE Investors Service announced that it has downgraded the outlook for SK Advanced from Stable to Negative, while maintaining its long-term credit rating at BBB+.

According to NICE Investors Service, the downgrade in outlook was due to several factors: an unfavorable regional supply-demand environment and poor business performance; a decline in financial stability resulting from accumulated negative cash flows; and the company’s reliance on shareholder financial support for funding needs.

NICE Investors Service stated, “Due to the unfavorable industry conditions, the company’s business performance has been weak since 2022. Considering the accumulated effects of capacity expansion, subdued demand, and future regional expansion plans, we expect the unfavorable supply-demand environment to persist. Given these factors, it will be difficult for the company’s business performance to recover in the short term.” The company’s average annual operating loss from 2022 to 2024 amounted to 110 billion won. In 2024 alone, operating losses reached 105.1 billion won by the third quarter. Since 2022, cumulative operating losses have totaled 432.7 billion won.

The decline in cash generation since 2022, resulting in weakened financial stability, was also highlighted. NICE Investors Service noted, “The company’s borrowings have increased rapidly. Given the continued weak business profitability and cash flow compared to the past, we expect a high dependence on external funding to persist, making it difficult to improve financial stability in the short term.” Net borrowings, which stood at 104.3 billion won at the end of 2011, surged to 571.2 billion won by the end of September 2024. During the same period, the debt ratio and net borrowing dependency soared from 64.7% and 9.9% to 841.6% and 65.5%, respectively.

In addition, regarding SK Advanced’s issuance of hybrid securities (perpetual bonds), NICE Investors Service commented, “SK Gas has provided a capital support agreement totaling up to 270 billion won, indicating that the company’s own funding capacity has weakened and that it is responding to funding needs based on shareholder support. Given the prospect of continued weak performance, we expect that the company will continue to rely on shareholder support to meet its funding requirements.”

NICE Investors Service further stated that it will closely monitor structural reforms to improve business competitiveness, changes in the regional propylene supply-demand environment, trends in the company’s sales volume and operating rates, the form of financial support from shareholders, and whether there will be additional support for Ulsan PP.