Corporate Credit Ratings at Risk... 54 Companies Downgraded Last Year, Up 46% YoY

[Asia Economy Reporter Park Jihwan] Last year, the number of companies with downgraded credit ratings totaled 54, marking a 46% increase compared to the previous year. Considering the economic situation caused by the recent COVID-19 pandemic, the downward trend in corporate credit ratings is expected to continue for the time being.

According to the '2019 Credit Rating Performance Analysis and Supervision Direction' released by the Financial Supervisory Service on the 28th, 37 companies experienced credit rating upgrades last year, while 54 companies saw downgrades. Compared to the previous year, the number of upgraded companies decreased by 7 (15.9%), and downgraded companies increased by 17 (45.9%).

Accordingly, the rating transition tendency last year was 1.6%, down 2.2 percentage points from the previous year. This marked a shift from a temporary upward trend in 2018 to a downward trend. The rating transition tendency is the percentage obtained by subtracting the number of downgrades from the number of upgrades and dividing by the number of companies holding valid ratings at the beginning of the year. Since 2013, the rating transition tendency had consistently shown negative values each year until 2017.

At the end of last year, 120 companies held rating outlooks (excluding 'stable'), among which the 'negative' outlook (78 companies, 65%) outnumbered the 'positive' outlook (42 companies, 35%). The proportion of 'negative' outlooks rose from 55.9% at the end of 2018 to 65.0% in 2019, indicating an expansion in downgrade forecasts.

A Financial Supervisory Service official stated, "The 2019 rating transition tendency shifted to a negative trend, indicating an overall downward direction in credit rating changes. Considering the recent economic situation, rating downgrades and default rates are expected to worsen rapidly this year following last year. We will conduct thorough monitoring of the credit rating market."

As of the end of last year, the number of companies holding unsecured bond credit ratings was 1,133 (including duplicates), an increase of 38 from 1,095 at the beginning of the year. Among companies issuing unsecured bonds last year, 7 companies defaulted. Since there were no defaults the previous year, the annual default rate rose from 0.00% to 0.91% year-over-year.

The average cumulative default rate (1998?2019) showed a clear difference between investment grade (0.13?1.50%) and speculative grade (6.41?14.34%), generally demonstrating a strong correlation between rating and default rate. This indicates that credit ratings were relatively accurate.

Last year, the market share in the credit rating sector remained dominated by a triopoly with Korea Ratings at 33.8%, Korea Investors Service at 32.5%, and NICE Investors Service at 32.4%.

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