Korea Ratings Downgrades SK Advanced's Credit Rating: "Prolonged Market Slump Leads to Continued Operating Losses"

Korea Ratings announced on the 25th that it will downgrade SK Advanced's unsecured bond credit rating from 'A-/Negative' to 'BBB+/Negative' and its commercial paper credit rating from A2- to A3+.

Korea Ratings cited the following reasons for the downgrade of SK Advanced's credit rating: continued operating losses due to sluggish market conditions; increased debt burden resulting from weak operating cash flow; and deterioration of the financial structure due to accumulated losses.

Korea Ratings explained, "The oversupply trend caused by the large-scale expansion of propane dehydrogenation (PDH) facilities in China has not improved," adding, "Operating losses have continued for an extended period since the fourth quarter of 2021."

SK Advanced recorded operating losses of 129 billion KRW in 2022, 82.5 billion KRW in 2023, and 116.1 billion KRW last year. Korea Ratings further noted, "Ulsan PP, an affiliate and major sales destination producing polypropylene, has also continued to post losses since commencing operations," and explained, "Related equity-method losses have also added to SK Advanced's net loss for the period."

Korea Ratings pointed out, "The supply burden is expected to ease only after 2027, and with SK Advanced's business focused solely on propylene production, there is limited ability to defend profitability through other product portfolios. As a result, poor operating performance is expected to continue."

The expansion of SK Advanced's debt burden and the rapid deterioration of its financial structure are also among the reasons. Korea Ratings emphasized, "As weak operating cash flow persists, the scale of borrowings has increased significantly. Although there are no investment plans other than regular maintenance, resulting in limited capital expenditure (CAPEX) requirements, poor cash generation, annual interest expenses of around 30 billion KRW, and capital contributions to Ulsan PP have led to continued cash flow deficits."

Korea Ratings added, "As of the end of March this year, total equity stands at 196.4 billion KRW. If losses at the current level (around 100 billion KRW annually) continue, there is a risk of a rapid deterioration in the financial structure. Even considering the possibility of capital expansion through shareholders, given the outlook for continued weak performance in the mid-to-short term and the potential need for additional capital contributions to Ulsan PP, it is unlikely that the increased financial burden will be meaningfully alleviated."

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