Korean companies to see more credit-negative results over next year: Moody’s

2019.09.10 15:27:10 | 2019.09.10 15:27:35

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Moody’s Investors Service on Tuesday warned negative rating actions that could lead to downgrades would outnumber positive ones for Korean companies over the next year as unfavorable trade conditions can further hammer performance of the Korean Inc.

Moody’s said in a release that out of the rated 27 non-financial companies, excluding non-listed public companies, 19 reported credit-negative results in the first half of this year. Only five reported credit-positive results and three credit-neutral results.

Of the 24 non-financial private companies rated by Moody’s, 13 have “negative” outlooks or are “under review for downgrade,” it said, with “no positive outlooks.”

The ratings agency expected overall industry conditions to deteriorate amid trade tensions and slowing global economy and Korean companies’ credit quality to further worsen over the next 12 months given their large-scale investment plans. The downward pressure, however, can be eased if companies reduce debt through asset sales or facility investment cut, it said.

Moody’s blamed deteriorated industry fundamentals in the first six months of this year, particularly among sectors were rated Korean companies operate.

“The deterioration was most severe in the memory chip, refining and petrochemical sectors amid sluggish demand driven in part by weakened business sentiment,” Moody’s said. “The steel sector also weakened in light of soft demand and a rise in raw material prices.”

The ongoing trade dispute between the U.S. and China is also expected to continue to negatively affect earnings of Korean export-oriented companies.

Yoo Wan-hee, vice president and senior credit officer at Moody’s, said that “this will be particularly evident in the technology and chemical sectors, where firms typically export large amounts of commodities and components to China.”

The escalating trade conflict between Korea and Japan, however, will not have significant impact on companies’ earnings as Japan’s export curbs would “result only in administrative delays in supplies.”​

By Chung Seok-hwan and Lee Eun-joo

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