Corporate rating drops hit 17-year high

Low profitability -- mainly caused by the protracted slump in the nation’s exports -- is undermining the credit standings of more companies this year, according to the three major local ratings agencies.

Korea Investors Service revised down the ratings of 45 firms -- mostly affilites of conglomerates -- over the past 10 months.

The 2015 figure has already surpassed the 33 posted in 2008 and 34 in 2009, when the global financial crisis hit the nation. The 45 in downgrading recorded as the highest number in 17 years since it peaked at 61 in 1998, when the Asian currency crisis struck the nation.

Similar assessments have been made by Nice Investors Service (which lowered 56 firms) and Korea Ratings (42 firms).

While three particular industries -- shipbuilding, shipping and construction -- mostly underwent rating cuts in the wake of the 2008-09 crisis, the lower ratings have spread to the overall business sector recently.

Analysts attributed the chain of drops in credit ratings to lackluster exports due to the globally protracted slowdown. The financial authority and banks’ stance to conduct a full-fledged corporate restructuring are also said to have fanned the downgrades.

Samsung Group saw its three units suffer the downgrades by KIS this year. They were Samsung Engineering, Samsung Heavy Industries and Samsung Fine Chemicals.

The rating firm also downgraded the ratings of four units of Doosan Group and three of POSCO Group. They included Doosan Engineering & Construction, Doosan Infracore, POSCO Engineering & Construction and POSCO Plantec.

Among others were SK Energy, GS Caltex, Korean Air and Asiana Airlines.

Under lower credit scores, companies should provide investors with higher interest rates on their corporate bonds. As a result, more and more firms -- after undergoing a rating drop -- are resorting to banks for their fund-raising.

Amid the unfavorable environments for their fund-raising via bond issuance, their redemptions for former bond issuances have exceeded the new issuances.

According to the Korea Financial Investment Association, their repayments reached 10.1 trillion won ($8.8 billion) while fresh issuances stood at 9.4 trillion won during the Sept. 1-Nov. 6 period.

The series of downgrading is likely to continue next year, officials at the ratings industry said.

“It is not easy to see a curb in negative external factors at the present stage. Those include the U.S. potential rate hikes, China’s economic slowdown and the Japanese yen’s weakness against the Korean won,” said a department head of KIS.

He predicted, “It would be difficult to see a reversal in the downward rating trends, at least until the first half of 2016.”

By Kim Yon-se (kys@heraldcorp.com)