Dark clouds loom over credit ratings of Korean firms

South Korean companies are bracing for a massive credit rating downgrade as the novel coronavirus spillover threatens their business outlook, according to industry sources Wednesday.

The weakening prospect of retailers, petrochemical firms and manufacturers in the wake of the coronavirus spread appears to be putting pressure on their liquidity.

On Tuesday, the credit outlook of three companies for straight bonds was revised to “negative,” according to three credit rating agencies -- NICE Investors Service, Korea Ratings and Korea Investors Service.

Those revised from “stable” to negative credit outlook Tuesday are hospitality firm Hanwha Hotels & Resorts, retailer Lotte Shopping, fashion retailer Shinwon.

This comes a day after a wave of downward credit outlook revisions of six companies -- multiplex cinema operator Megabox Joongang, apparel maker Fashion Group Hyungji, auto partsmaker Daesung Eltec, steel product maker Nexteel and oil refiners SK Energy and S-Oil.

Other companies that were given a negative outlook in April include Hotel Lotte, Hotel Shilla, Dayou Plus and Dayou AP. This comes in contrast with one downward revision in April a year earlier.

The negative outlook for a bond indicates that the credit rating is likely to be lowered in the mid- to long-term. The credit rating is directly associated with the yield of a company’s leveraging plan through corporate bonds. A lower credit rating translates into a bond’s higher yield and lower value, which weakens investor appetite.

Such a credit outlook is already influencing corporate bond deals. Hanwha Solutions’s bond undersubscription in 210 billion won ($172.7 million) institutional sales on Monday was largely attributed to the abrupt revision of the credit outlook to negative earlier in April.

This also overshadows another bond deal by Hotel Shilla, which is seeking to raise 150 billion won through AA-rated bonds. Korea Investor Service revised down the prospect for AA rating to negative on April 9, a week before the institutional bidding on Thursday.

Also, Korea Ratings cut retailer E-mart’s credit rating to AA from AA+, 11 months after its outlook was revised down to negative. It was the first credit downgrading of E-mart from Korea Ratings in the company’s history.

By Son Ji-hyoung (consnow@heraldcorp.com)