Corporate Credit Ratings 'Plummet'... More Concerns for the Second Half of the Year

First Half: 58 Companies Downgraded
Surge in Companies with Downgraded Rating Outlook
Growing Concerns Over Potential Rating Adjustments

[Asia Economy Reporter Minji Lee] Corporate credit ratings are plummeting due to the impact of the novel coronavirus infection (COVID-19). Moreover, with a large number of rating outlook adjustments taking place, the number of companies receiving rating adjustments in the second half of the year is expected to increase significantly.

◆ 58 companies downgraded in the first half of the year = On the 17th, the three major domestic credit rating agencies?Korea Ratings, Korea Investors Service, and NICE Investors Service?reported that the number of companies downgraded in both long-term and short-term ratings in the first half of this year were 23, 17, and 18 respectively. This is significantly higher than the number of companies upgraded, which were 5, 8, and 6 respectively. Last year, 50 companies (including duplicates) were downgraded in the first half, but this year the number increased to 58. Conversely, the number of companies upgraded decreased from 31 to 19.

Looking at the upgrade-to-downgrade ratio, the trend toward downgrades is more pronounced than last year. According to NICE Investors Service, the upgrade-to-downgrade ratio in the first half of last year was 0.78, but it shrank to 0.33 this year. Based on Korea Ratings, it decreased from 0.47 to 0.21, and Korea Investors Service also saw a reduction from 0.6 to 0.47. In 2018, the upgrade-to-downgrade ratio approached 1, indicating a recovery in corporate creditworthiness, but the ongoing US-China trade war that intensified last year and the COVID-19 crisis have continued to cause a decline in corporate credit ratings.

By industry, sectors directly affected by COVID-19 such as airlines, hotels, and movie theaters showed significant concerns about downgrades. Amid the negative business conditions forecasted earlier this year, industries like automotive, steel, refining, and finance also experienced rating adjustments due to the added negative impact of COVID-19. Emart's rating fell from 'AA+/Negative' to 'AA/Stable', and CJ CGV (A+/Under Review for Downgrade → A/Negative), OCI (A+/Negative → A/Stable), LG Display (AA-/Negative → A+ Negative) also saw their ratings lowered. Polaris Shipping, Kumho Electric, KCC, Hyundai Rotem, and Doosan Fuel Cell were also downgraded. Companies upgraded included POSCO Engineering & Construction, NCSOFT, and Daelim Energy, with improvements in individual company performance and financial structure cited as factors for the upgrades.

Kim Taehyun, Head of Evaluation Standards at Korea Ratings, explained, "Uncertainties in macroeconomic conditions such as the US-China trade dispute, interest rates, exchange rates, and oil prices remain high. With COVID-19 leading to movement restrictions and city lockdowns, consumption slumps, oil price declines, and reduced trade volumes have expanded negative impacts across the global economy."

◆ The second half is more precarious = The market evaluated that, compared to the general decline in corporate performance in the first half's regular evaluations, the extent of downgrades was relatively limited. Kim Gimyung, a researcher at Korea Investment & Securities, said, "The results of the corporate bond regular evaluations suggest that the scope and extent of rating adjustments may be more limited than initially feared at the start of COVID-19. Many companies had their rating outlooks downgraded, and the proportion of outlook downgrades was larger than actual rating downgrades." This is based on the judgment that most downgraded companies had financial structure and fundamental weaknesses even before COVID-19.

Since the number of companies with negative rating outlook adjustments is even larger, concerns about potential future rating downgrades remain. According to the three credit rating agencies' regular evaluations in the first half, the number of companies with downgraded rating outlooks more than doubled from 69 last year to 140 this year. The number of companies with upgraded rating outlooks decreased by about 20%, from 35 to 28.

Major conglomerate affiliates were not spared from surveillance. Doosan Heavy Industries was downgraded from 'BBB/Negative' to 'BBB-/Rating Watch', and Doosan (BBB+ → BBB/Rating Watch) and Doosan Infracore (BBB/Stable → BBB/Rating Watch) were also adjusted. Doosan Heavy Industries, a core company of the group, faced a liquidity crisis this year due to performance deterioration caused by worsening order bases and subsidiary support risks.

Hanwha Group also saw growing concerns over performance declines, mainly in its financial and petrochemical affiliates. Representative cases include Hanwha Life Insurance (AAA/Stable → AAA/Negative), Hanwha General Insurance (AA/Stable → AA/Negative), and Hanwha Total (AA/Stable → AA/Negative). In Lotte Group, companies with weak financial stability such as Lotte Shopping (AA/Stable → AA/Negative) and Hotel Lotte (AA/Stable → AA/Under Review for Downgrade) were included, while SK's refining-related companies SK Energy, SK Innovation, and SK Incheon Petrochem were listed among those with downgraded outlooks.

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