Value context and insight. lkm@koreatimes.co.kr
S&P Global sees no turnaround for Korean firms
S&P Global Ratings Asia Pacific Corporate Ratings Director Park Jun-hong speaks to reporters at the Seoul Finance Center, Thursday.
By Lee Kyung-min
By Lee Kyung-min
Korean firms are unlikely to see a major turnaround in 2019 due to their debt burden and lingering uncertainties, global ratings appraiser S&P Global said, Thursday.
It said that an overall decrease in profit compounded by an increase in debt are posing major risks to big companies in key industries, including electronics, IT, petrochemical and steel.
“The determinant in the credit ratings are profit and debt. First, the number of firms that will see profits decrease compared to last year far outweighs those that will not,” S&P Global Ratings Asia Pacific Corporate Ratings Director Park Jun-hong said at a meeting with reporters at the Seoul Finance Center.
“In terms of profit, this year will see a greater loss compared to last year or the year before. If you ask which Korean companies will see performance improvement from last year, the answer is close to none.”
The agency expects that a substantial number of firms will see an increase in debt, mostly due to an increase in investment amid industry-wide efforts to identify new sources of sustainable growth.
“Firms that we have a negative outlook on include LG Chem and SK Innovation. Telecom companies will also see debt increase because of recent promotions involving fee reductions as well as investment in 5G networks,” he said.
Firms such as E-mart have also seen a decline in profit due to investment in future-oriented growth.
Samsung Electronics enjoys a “high base,” meaning the firm's outstanding performance over the past two years has helped partly negate the softening in global demand.
However, the “positive outlook” can change on a firm's incompetence or lack of flexibility in the management of debt, mostly dependent on an investment plan.
Income-led growth, a key economic policy spearheaded by the Moon Jae-in administration will continue to pose a downward risk to state-run firms such as the Korea Electric Power Corp. (KEPCO), he said.
“The nuclear phase-out policy and new energy source initiatives are among many factors decreasing profit for the firm. It manages to stand for now, but if such risks become protracted, the firm's financial health will inevitably become weak.”
Meanwhile, in its latest report on Asia-Pacific quarterly forecasts, the ratings agency lowered its 2019 growth outlook for the Korean economy to 2.4 percent from 2.5 percent.