[2025 Audit] 'Excellent Ratings' Despite Poor Finances?... Lax Credit Evaluation Oversight by Public Procurement Service

A structural contradiction has been revealed in which companies with poor financial health can easily enter the public procurement market. This issue has arisen because the Public Procurement Service recognizes credit ratings from both major credit rating agencies under the Capital Markets Act-such as Korea Ratings, Korea Investors Service, and NICE Investors Service-and general credit rating agencies under the Credit Information Act as having the same validity, without distinction.

According to data submitted by the Public Procurement Service to Assemblyman Jung Ilyoung of the National Assembly Strategy and Finance Committee (Democratic Party of Korea, Incheon Yeonsu-eul) on October 21, there have been cases where ratings assigned by general credit rating agencies were inflated by up to eight notches compared to those from major credit rating agencies.

For example, Company A, a railway vehicle manufacturer with sales of 4.3765 trillion won, operating profit of 456.5 billion won, and a debt ratio of 163%, received an 'A+' rating from a major credit rating agency but was rated two notches higher at 'AA' by a general credit rating agency.

Another railway vehicle manufacturer, Company B, with sales of 544.8 billion won, operating profit of 31.5 billion won, and a debt ratio of 435%, received a 'BB' rating from a major credit rating agency but an 'A+' rating from a general credit rating agency, an increase of seven notches.

In the case of Company C, with sales of 301.5 billion won, operating profit of 7.6 billion won, and a debt ratio of 155%, despite low financial soundness, it received an 'A' rating from a general credit rating agency, which is eight notches higher than the 'BB-' rating from a major credit rating agency.

The problem is that excessive rating inflation, which is disconnected from actual financial health, undermines trust in the public procurement market.

This is the result of overly lax evaluation standards. General credit rating agencies can begin evaluations if they meet just one of the six requirements stipulated by law, and they can issue rating results within a day if an additional fee is paid. This raises suspicions of hasty evaluations.

In contrast, major credit rating agencies must meet all seven requirements before starting an evaluation, and the process typically takes more than 20 days, highlighting the difference from general credit rating agencies. As a result, a phenomenon known as 'rating shopping' is intensifying among companies seeking to enter the public market, as they look for agencies that can provide 'faster and higher ratings.'

Poor evaluations resulting from rating shopping also affect the fulfillment of public project deliveries. For example, Company B failed to deliver 490 Korail electric train cars on time and has not delivered 336 Seoul Metro electric train cars for over a year. Additionally, Company C is facing legal disputes due to delays in delivering 474 EMU-150 electric train cars, and its use of advance payments is reportedly under audit due to a lack of transparency.

Assemblyman Jung pointed out, "Some small credit rating agencies are essentially selling ratings for money, advertising that 'an A+ can be issued in one day if you pay an express fee.'"

He continued, "Credit ratings that are disconnected from actual financial conditions undermine trust in public procurement and can lead to waste of taxpayer money. The Public Procurement Service must completely review its credit rating system and strengthen the fairness and transparency of evaluation standards and procedures."

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