The credit rating for South Korean firms is anticipated to remain stagnant this year due to challenging external factors that weigh down exporters, Moody’s Investors Service Inc. said Wednesday.
The global credit appraiser said 38 percent of the country’s private companies received a negative credit outlook at end-April this year, compared to 32 percent tallied at end-2012.
“As for the outlook on South Korean corporate ratings for over the next 12-month period, the most important key word is that the downward trend pressure will continue,” said Chris Park, the firm’s vice president.
“The main reason for the pressure will be weak growth in key export markets, subdued domestic consumer spending, the Korean won’s appreciation against the U.S. dollar and the Japanese yen, and some companies’ aggressive investment strategies,” Park added.
Park said the weak Japanese yen observed in the recent period dented local exporters as it came along with the global economic slowdown, unlike other depreciations posted in years before.
A relatively stronger won inflicts foreign exchange losses on local exporters, making South Korean goods more expensive overseas.
“Sluggish demand growth in developed markets and China will hinder recovery of the profitability and cash flow of many Korean exporters of commodity products, particularly of steel and chemicals,” Park added. China is the biggest trading partner of Asia’s fourth-largest economy.
Specifically, the global investment bank said the gloomy outlook over local steelmakers and builders remains unabated, due largely to a depressed cash flow in the housing and civil engineering industries.
Concerns over cost overruns on massive ongoing projects in the Middle East, which are slated to be completed in 2013-2014, also came as a major drag on local builders’ earnings, Moody’s said.
“Intensive competition among South Korean builders also weighed down on their credit outlook,” Park added. “The speed of increasing debt is alarming for large firms.” (Yonhap News)
