Korea Ratings Corporation Upgrades S-Oil's Credit Rating to 'AA+'... "Refining Margins Improve After War"

Operating Profit Expected to Increase in Q1 After the War
Financial Burden From Large-Scale Project Remains Under Control

On March 25, Korea Ratings Corporation raised the unsecured bond rating of S-Oil from AA (Positive) to AA+ (Stable) through its regular review.

On March 26, Korea Ratings Corporation explained the upgrade, stating, "S-Oil's operating performance is expected to continue improving due to rising oil prices and product margins, and the financial burden associated with large-scale petrochemical investments is being significantly controlled thanks to financial support from the largest shareholder."

The ongoing "Iran war" also influenced this evaluation. Korea Ratings Corporation stated, "Following the outbreak of the U.S.-Iran war, S-Oil is expected to post a significant increase in operating profit in the first quarter of this year due to inventory timing effects and inventory asset valuation gains arising from surging oil prices, as well as improved refining margins."

The agency added, "Considering the structural constraints on crude oil and petroleum product supply in Asia due to damage to energy infrastructure in the Middle East and export restrictions by major countries, S-Oil is likely to continue to see favorable performance driven by higher oil prices and increased product margins, at least for the time being, despite government regulations such as the petroleum product price ceiling policy."

Regarding the large-scale petrochemical "Shaheen Project," the agency assessed that the financial burden is being significantly controlled on the back of support from Aramco, the largest shareholder. Korea Ratings Corporation stated, "The Shaheen Project is being carried out under Aramco's strategic direction, and Aramco continues to provide active financial support, such as extending the maturity of accounts payable, offering loans, and providing standby credit lines. After the completion and commercial operation of the facilities in the second half of this year, the improved cash generation is expected to gradually ease the financial burden."

However, the agency noted that if the war is prolonged, there could be disruptions in crude oil procurement, necessitating close monitoring going forward. Korea Ratings Corporation explained, "S-Oil is assessed to face relatively low risks of crude oil procurement and reduced operating rates, given Aramco's supply chain support. Nevertheless, if the war expands and disruptions in crude oil procurement and input intensify, it could materially impact process operations and profitability. We will continue to closely monitor crude oil procurement and plant operating rates."

The agency also stated that investment performance after the commercial operation of the Shaheen Project could become a significant variable for operating results and will be reviewed further.

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