Fitch refuses to raise Samsung's credit rating
By Lee Min-hyung
Fitch Ratings seems to face a dilemma over whether to negate its negative report over Samsung Electronics’ growth outlook as its rival players S&P and Moody’s raised their ratings for the tech giant.
The two of the “big three” ratings agencies have recently revised up the credit ratings for Samsung, with the electronics giant posting record profits this year thanks to its unmatched leadership in the global memory chip and smartphone industries.
Late last week, Moody’s elevated the outlook on Samsung Electronics to “positive” from stable.
“The change in outlook to positive reflects the company’s improved operating stability and profitability, both underpinned by its solidifying technological leadership, balanced earnings contributions from its mobile and semiconductor businesses, as well as its exceptionally strong financial buffers against high capital expenditure needs and cyclicality,” said Gloria Tsuen, Moody’s vice president and senior analyst.
The ratings agency also said Samsung has room for additional ratings upgrades if it demonstrates its operating resiliency and stability for more quarters to come, regardless of the ongoing trial of its Vice Chairman Lee Jae-yong.
The prosecution on Monday sought 12 years in jail for the Samsung heir on bribery charges in the influence-peddling scandal involving former President Park Geun-hye and her close confidant Choi Soon-sil. Lee was arrested this February for allegedly offering more than 40 billion won ($38 million) to Choi and her family in return for business favors.
The Moody’s report came after S&P upgraded Samsung credits to “AA-” from A+ last month. The U.S-based ratings titan attributed the decision to Samsung’s stable growth outlook for more years to come in its various business sectors, such as memory chips, display and mobile devices.
This is in contrast to Fitch Ratings’ conservative stance on Samsung’s growth outlook. The credit outfit has maintained Samsung’s rating in the A+ category in recent years, citing the capital-intensive nature of the hardware-oriented company.
“In the case of Microsoft’s AA+ rating, its operating margins have been consistently higher than 40 percent over the past five years, well above Samsung’s five-year average of 8.6 percent,” Fitch said in its 2012 report. “Fitch does not expect Samsung’s highly capital-intensive nature to change very much.”
Breaking the lukewarm growth expectations, Samsung reported in this second quarter its largest-ever operating profit of 14 trillion won on the booming memory chip business. The company’s mobile unit was also another key contributor to the record earnings, recovering from its nightmarish smartphone recall last year surrounding exploding batteries of the Galaxy Note 7.
At that time, Fitch said the incident would deal a blow to Samsung’s long-term brand image.
“The issues with the flagship model have highlighted weakness both in R&D capabilities and the company’s capacity to efficiently remedy serious hardware defects,” it said.
Despite the negative expectation, Samsung’s other flagship Galaxy S8 smartphone, unveiled this March, chalked up brisk sales, prompting top credit agencies to raise its ratings with the sole exception of Fitch.