POSCO EandC, LGE, Woori, Shinsegae among firms downgraded

By Kang Seung-woo

The number of Korean companies’ credit downgrades doubled in 2011 from the previous year due to global uncertainties and an economic downturn, a report showed Wednesday.

According to the Korea Center for International Finance (KCIF), global credit appraisers ― Standard & Poor’s, Moody’s Investors Service and Fitch Ratings ― lowered the credit ratings of domestic firms on 10 occasions last year, compared to five in 2010.

Firms in Korea, Asia’s fourth-largest economy, did not suffer any credit downgrade between 2005 and 2007, but since 2008, the number of cuts in their credit ratings have combined for 51, peaking at 25 tallied in 2009 when the nation was hit hard by the global financial crisis.

Those who saw their corporate credit rating downgrades were POSCO Engineering and Construction (E&C), POSCO, Shinsegae Group, LG Electronics, Woori Investment and Securities, Citibank Korea, Korea Investment Holdings and the National Agricultural Cooperative Federation, better known as Nonghyup.

Among them, the construction affiliate of the steel giant POSCO suffered a credit cut three times last year, once by S&P and twice by Moody’s.

In October last year S&P last downgraded the builder’s credit rating to ‘BBB’ from ‘BBB+’, citing its profitability and cash flow will weaken in the immediate term due to difficulties in its domestic housing and overseas engineering businesses and contingent liabilities associated with developers’ project finance debt.

The KCIF attributes a slew of credit cuts to sluggish business, worsened by growing uncertainties from the ongoing European debt crisis and a possible global recession. Slowing demand, rising competition and weaker-than-expected earnings were cited for POSCO, while LG Electronics’ weak mobile business was given as a detrimental factor for the world's No. 3 handset maker.

“Last year, a few local companies came up with lower-than-expected marks due to an economic downturn and the prolonged property market slump. Although the credit ratings of the nation and banks are holding solid, the credit rating agencies appear to think there are still uncertainties among local firms,” said a KCIF official.

“The global economic downturn may negatively affect local players, but we do not have to excessively worry about it given that the auto industry that takes up a large portion of exports is gaining positive reviews.”

Meanwhile, there were seven credit upgrades for six companies last year, marking a seven-year low counting back to 2005. In addition, it was the first time for a single-digit upgrade among local companies in the cited period.

The six are Shinhan Bank, Hana Bank, SK Broadband, Citibank Korea, Hyundai Motor and Kia Motors, who saw its credit elevated twice. In Citibank’s case, Fitch gave it a downgrade despite S&P’s outlook.

Market watchers think that the downward trend in local companies’ credit ratings is expected to continue this year due to the globally poor economic conditions.

“This year the global economy is expected to grow less than last year, which will negatively affect the export-driven local economy,” said Lee Chang-seon, a senior economist of LG Economic Research Institute.

“As a result, some local players will not be able to avoid credit downgrades.”