Credit Ratings Plummet Due to COVID-19... Food and Beverage Industry Soars High

Increased Demand for Necessities and Reduced Promotion Costs
21 Companies Including Maeil Dairies Maintain or Upgrade Ratings
Cumulative Sales Up 7.4% Through September

Poor Performance in Cinemas, Hotels, and Oil Refining
Credit Ratings Downgraded One After Another

[Asia Economy Reporter Park Jihwan] Food and beverage companies are demonstrating strong creditworthiness despite the prolonged impact of the novel coronavirus disease (COVID-19). While credit rating downgrades have surged in other industries due to COVID-19, the food and beverage sector is proving to be a safe haven. Analysts attribute this to steady demand growth and reduced promotional expenses, owing to the essential goods nature of the sector, despite worsening consumer sentiment and economic downturn.

According to the credit rating industry on the 23rd, Korea Ratings upgraded the unsecured bond credit ratings and outlooks of Daesang and Maeil Dairies from A+ (positive) to AA- (stable) on the 21st. Throughout this year, the credit ratings and outlooks of 21 food and beverage companies have either been maintained or upgraded. Earlier, HiteJinro’s outlook was changed from negative to stable, and Daesang, Maeil Dairies, and Haitai Confectionery & Foods were adjusted from stable to positive.

The food and beverage sector has also been spared from the domestic consumer sentiment contraction triggered by the spread of COVID-19. Due to its essential goods characteristics, it has maintained a stable demand base and significantly improved performance. The combined sales of 16 major companies through September this year increased by 7.4% compared to the previous year. Operating profit margin also rose by 2.1 percentage points from 5.3% last year to 7.4%. This was the result of reduced promotional activities in face-to-face channels and eased marketing competition among rivals, which lowered selling and administrative expenses.

Yeom Jaehwa, a senior researcher at Korea Ratings, explained, "Demand for food and beverages continues to show a solid trend," adding, "Despite worsening income conditions such as economic downturn and rising unemployment, the average monthly household expenditure on groceries expanded from 333,000 won in the third quarter of last year to 409,000 won this year."

On the other hand, credit rating agencies have been consecutively downgrading the credit ratings of companies in sectors severely affected by prolonged COVID-19, such as movie theaters, hotels & duty-free shops, and refining. On the 21st, Korea Ratings downgraded SK Energy’s credit rating from AA+ to AA and SK Incheon Petrochem from AA- to A+.

Researcher Song Soobeom of Korea Ratings pointed out, "The profit base of the core business has weakened, with record operating losses occurring." Rating agencies also lowered the credit ratings of Hotel Shilla and Hotel Lotte from AA to AA-, citing the low likelihood of a short-term recovery due to decreased inbound foreign visitors and avoidance of multi-use facilities. The credit ratings of cinema industry players such as CJ CGV, Lotte Cultureworks, and Megabox Joongang were also downgraded by one notch from their previous ratings.

There remains a possibility of further credit rating downgrades for these companies next year. Korea Investors Service evaluated the industry outlook for 10 sectors next year?including private power generation, automobile & parts, hotel & duty-free, steel, air transportation, distribution, refining, capital, banking, and life insurance?as unfavorable.

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