Credit rating cuts spread across Korea Inc. to add risks to fund market

[Photo by Yonhap]

South Korean companies are facing a higher risk of their credit ratings being downgraded as earnings are hit by the global economic slowdown.

Korea Ratings, a major credit rating agency in Korea, last week downgraded LX Hausys Ltd., a major construction materials supplier, to A+ from AA-. The credit rating agency revised down its outlook on retailer Lotte Himart Co., rated AA-, to “negative” from “stable” and GS Retail Co. to “stable” from “positive.” Credit rating in Netmarble Corp., a major game developer, was also downgraded to A+ from AA-.

NICE Investors Service, another major rating agency, recently downgraded the outlook on POSCO, AA+ rated steel giant, to “stable’’ from “positive.”

Although their businesses are different, the reasons for the downgrades were the same - negative earnings outlook.

The series of downgrades in Korean firms’ credit ratings is adding more weight to the local capital market, which is struggling to overcome the shockwaves caused by a default in a financing project for the construction of Legoland Korea amusement park.

The interest rates in commercial papers are coming down on efforts by the central bank and financial authorities to restore stability but fears still dominate the local credit market. Lotte Engineering & Construction Co. on Monday successfully completed its book-building session to raise 250 billion won ($197 million) worth of one-year bonds but analysts say the success could not have been possible without the government’s support measures, such as commitments from state-run Korea Development Bank and bond market stability fund.

“As interest rates continue to rise and investors’ sentiment in the credit market remains sour, it is getting more difficult for companies to raise funds,” said Lee Hwa-jin, an analyst at Hyundai Motor Securities Co. Investors are becoming more cautious of junk bonds while demand for investment-grade bonds is growing, Lee added.