More firms face downgrade in credit ratings

By Kim Bo-eun

gettyimagesbank

A growing number of businesses are likely to suffer a downgrade in credit ratings as a result of the coronavirus outbreak, with local and global ratings agencies placing companies on their watch lists.

For now, at-risk companies are mainly limited to airlines, but businesses of more sectors including retail and petrochemicals may become subject to a downgrade, as the spreading virus afflicts more industries.

Korea Investors Service (KIS) recently kept Korean Air's credit rating at BBB+ but put the company on its watch list for a possible downgrade. Another local rating agency, Korea Ratings, maintained the same rating for the airline but also placed it on its negative review list.

Both agencies also put Korean Air's largest shareholder Hanjin KAL on review for a possible downgrade from its BBB rating.

The companies face a downgrade in an upcoming regular rating review that takes place between April and June as travel restrictions based on the COVID-19 outbreak are expected to be maintained for the time being.

“Due to the spread of [COVID-19] in Korea, a sharp decline in profit and profit creation capabilities is inevitable, and it is difficult to foresee the normalization of air travel demand and profitability within a short period of time,” a KIS analyst said.

Moody's, meanwhile, downgraded Korean Air affiliate Hanjin International's corporate family rating to B3 from B2. The previous outlook for the company was stable, but the agency placed the ratings under review for a downgrade.

Airlines such as Korean Air were among the first companies agencies scutinized, as the industry has been among the first to be hit by the COVID-19 crisis. International flights and the number of passengers has drastically fallen based on travel restrictions and a plunge in travel demand.

Businesses of more sectors may become subject to a credit downgrades as the virus continues to spread globally.

A report issued by KIS last month noted airlines and transport companies, as well as hotel and duty-free businesses, would be the hardest hit and forecast falling demand in service sectors including retail, movie theaters and restaurant businesses.

Moody's on Feb. 21 issued a negative outlook for discount retailer E Mart. It also changed Lotte Shopping's outlook to negative, along with S&P Global Ratings.

On Monday, the agency said it would review Hanwha Life and Hanwha General Insurances' ratings for a possible downgrade.

"Hanwha Life's profitability will remain at risk with higher global capital market volatility and reduced premium income due to disruptions to its distribution channel," Moody's analyst Young Kim said.

S&P noted it has a negative outlook on almost 25 percent of Korean companies rated by the agency.

"Korean firms belonging to the refining and chemical, steel, airline, retail, auto and technology sectors are all highly exposed," S&P credit analyst Park Jung-hong noted in a report published March 12.