Corporate credit rating upgrades should be green light for investors

EcoPro BM Co. headquarters [Courtesy of EcoPro BM]

Investors are recommended to pay attention to companies that have seen their credit ratings raised as this is a positive indicator of improved financials that could lead to lower costs in fundraising plans.

Six companies have seen their credit ratings or outlook raised this year, according to NICE Investors Service on Wednesday. EcoPro BM Co., SJ Rent A Car Co. and Hyundai Capital Services Inc. had their ratings raised. Hyundai-Rotem Co., HD Hyundai Electric Co. and Kumho Petro Chemical Co. saw improvement in their outlook. A ratings outlook is a rating agency‘s estimate of the potential movement of a company’s rating, and it can be one of four ratings: fluctuating, negative, stable or positive.

While better earnings forecasts may be reflected, rating upgrades in general are made after a company’s earnings growth has been demonstrated, making the data reliable concerning a company’s overall soundness. A higher rating, in turn, can lead to lower costs for corporate bond issuances or for taking out loans from banks, helping management attain some stability. “The recent high interest rates have increased the importance of credit ratings and costs of capital,” said an industry insider.

Shares of the five listed companies have outperformed the market. They gained on average 40 percent, compared with KOSPI’s 11.5 percent gain and KOSDAQ’s 22.1 percent. Excluding KOSDAQ-listed EcoPro BM, KOSPI-listed companies rose on an average of 12.7 percent.

EcoPro BM saw its long-term credit rating rise to “A-/positive” from “BBB+/positive” on April 27, as the level of certainty for payment of its principal and interest rose to high from acceptable and the company’s ability to repay its debt was seen as being less likely affected by outside factors.

SK Rent A Car’s credit rating was raised to “A+/stable” from “A/positive” on May 3, largely attributed to its acquisition of AJ Rent-A-Car, which helped the rental car company to enjoy larger economies of scale.

“Following the integration of the rental car services in the SK networks Co., cheaper unit prices and discounted insurance premiums for bulk purchases, as well as lower sales and better flowing general costs, along with branch consolidation, all benefited the company with better cost control and organizational efficiency,” said the rating agency.

As for Hyundai-Rotem, its steady stream of new orders and increasing share of lucrative defense business were the main contributors to its outlook being raised to “positive” from “stable.” The company’s credit ratings remained at “A-” on March 31. “The company is expected to enjoy high profitability during the delivery period following a large order from the Polish defense procurement agency,” said the rating agency.

HD Hyundai Electric also saw its rating outlook raise to “A-/positive” from “A-/stable” on April 21. “As the company’s order balance is expected to grow to 3.4 trillion won in 2023 from 1.6 trillion won at end-2020, the company is likely to see some mid- or long-term growth in its sales revenue following an expansion of its business,” the ratings agency said.

Kumho Petro Chemical’s outlook was lifted to “A+/positive” from “A+/stable” on April 26 despite a downturn in the overall chemicals industry, thanks to its stable cash flow.