SK Innovation"s Ulsan Complex. [Photo by Yonhap]
Shares of SK Innovation Co., South Korea’s oil refining major with electric vehicle battery business, lost ground Wednesday upon a downgrade from global rating agency S&P questioning its short-term business outlook and turnaround in its financial balance.
S&P Global Ratings on Tuesday cut SK Innovation’s issuer credit rating from BBB to BBB- and outstanding debts also a notch from BBB- to BB+, with a negative outlook. Debts are regarded as “speculative” from BB+ in the S&P scale and can be further downgraded under the “negative” outlook.
Its shares lost 2.19 percent to close at 156,500 won )$141.39) on Wednesday.
S&P pointed to the company’s widening losses as its petrochemicals suffered from poor global demand and battery business yet to turn around. The company is expected to log “significant operating losses in 2020 owing to the drop in crude oil price and weak demand amid COVID-19,” while “only a modest recovery” will be likely in its 2021 earnings, the agency said in a press release. It projected the profitability pressure coupled with significant investments for EV battery business to result in “much higher debt” until next year.
The agency warned of another downgrade if its adjusted debt-to-EBITDA ratio remains over 4.0x without showing signs of “substantial recovery” over the next year or two.
The agency also cut its issuer credit rating on SK Innovation’s subsidiary SK Global Chemical Co. to BBB- from BBB because the subsidiary’s “credit quality is tied to that of SK Innovation."
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