SK Inno followed by LG Chem downgraded... Major Corporations' Credit Ratings Hit by COVID-19 Impact

[Asia Economy Reporter Koh Hyung-kwang] Global credit rating agency Moody's has downgraded LG Chem's credit rating by one notch. This comes just four days after Moody's downgraded the credit ratings of SK's core affiliates, citing the novel coronavirus (Wuhan pneumonia). Analysts interpret this as the negative impact of the novel coronavirus outbreak indirectly and directly affecting the creditworthiness of large domestic corporations.

According to industry sources on the 11th, Moody's downgraded LG Chem's credit rating from 'A3' to 'Baa1' the previous day. The downgrade was attributed to weak demand and oversupply leading to a decline in petrochemical product prices, as well as slow profitability improvement in the battery business division. Moody's explained, "Cash generation capacity has weakened, and it is unlikely that the financial structure will improve significantly over the next 1 to 2 years," adding, "EBITDA, which represents the company's cash generation ability, decreased by about 26% year-on-year to 2.8 trillion KRW."

Although Moody's did not directly mention the impact of the novel coronavirus this time, both Moody's and Standard & Poor's (S&P) recently pointed out that China, the largest market for domestic refining, chemical, and steel companies, is likely to experience an economic slowdown due to the novel coronavirus, raising concerns about weak demand. Therefore, the recent rating adjustment for LG Chem appears to be related.

On the 6th, Moody's downgraded the credit ratings of SK Innovation and SK Global Chemical from 'Baa1' to 'Baa2', citing poor performance and the economic downturn in China caused by the novel coronavirus as reasons. This was the first time the novel coronavirus was directly mentioned in the credit evaluation of domestic companies.

Moody's analyst Yoo Wan-hee explained the background of the downgrade, saying, "It reflects the expectation that SK Innovation's significantly weakened financial indicators last year will be difficult to recover meaningfully over the next 12 to 18 months," and added, "The recent spread of the novel coronavirus will temporarily impact the Chinese economy and increase performance pressure on SK Innovation in the first half of this year." Regarding SK Global Chemical, Yoo said, "The rating adjustment was made together considering its close relationship with SK Innovation."

S&P also warned that the novel coronavirus outbreak has emerged as a risk factor for credit rating downgrades in the Asia-Pacific region. On the 5th, S&P stated, "The negative impact of the novel coronavirus across the Asia-Pacific region will peak by June," and warned, "If the situation prolongs, it could directly affect credit ratings in the automotive and banking sectors." S&P forecasted that growth will stabilize in the latter half of this year and recover from a temporary downturn in early next year.

This content was produced with the assistance of AI translation services.