S&P upgrades POSCO's rating outlook to 'stable'

Global credit appraiser Standard & Poor's (S&P) said Wednesday it has revised up its credit outlook for South Korean steelmaker POSCO Co. to "stable" from "negative," citing the firm's recent efforts to improve cash flow.
"We expect credit metrics for POSCO to improve this year, and for the company to start generating positive free operating cash flow for the first time since 2010 thanks to significant nondebt financing, declining capital investment, and stabilizing operating performance," said S&P credit analyst Han Sang-yun.

The steelmaker's long-term corporate credit rating was maintained at the current "BBB+" level, with its debt to EBITDA forecast to "improve and remain below (S&P's) downgrade trigger of 3.5 times over the next 24 months," according to the credit appraiser.

EBITDA refers to earnings before interest, taxes, depreciation and amortization, and it is a key financial indicator of profitability widely used by investors to gauge a possible investment.  

The credit appraiser attributed its outlook revision to the steelmaker's moves to raise cash by selling assets, including the recent sale of a 38-percent stake in its construction arm, POSCO Engineering & Construction Co., to Saudi Arabia's state-run Public Investment Fund.

The rating for POSCO's construction unit was also revised up to "stable" from the previous "negative," with the long-term corporate credit rating staying pat at the "BBB-" level, according to S&P.

The latest credit ratings come just days after Moody's Investors Service Inc. downgraded its credit outlook on POSCO E&C to "negative" from "stable."

Moody's cited that although the recent stake sale may reduce the level of indebtedness, it is not enough to offset the pressure from the builder's excessive borrowing. (Yonhap)