Korea Ratings Upgrades Poongsan's Credit Rating from 'A+' to 'AA-'

Korea Ratings·KR announced on April 21 that it has upgraded the unsecured bond credit rating of Poongsan from A+ (Positive) to AA- (Stable).

The agency stated that in its regular evaluation on the same day, it raised Poongsan's unsecured bond credit rating as above, and through an ad-hoc review, also upgraded the company's commercial paper credit rating from 'A2+' to 'A1'.

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The primary reason for this credit rating upgrade is the improvement in Poongsan's earnings power, mainly driven by the growth of its defense business, which has maintained healthy profitability.

Korea Ratings·KR noted, "The defense business is leading the enhancement of Poongsan's earnings power, supported by a stable domestic demand base and the expansion of relatively profitable export sales." The agency added, "With the prolonged Russia-Ukraine war, ongoing conflicts in the Middle East, and the U.S.-Iran war, rising geopolitical tensions and heightened security uncertainties have led to increased global demand for ammunition. As a result, the strong performance of the defense sector is expected to continue for a considerable period."

Additionally, the agency analyzed that Poongsan maintains an excellent level of financial stability, despite working capital and investment burdens. Korea Ratings·KR explained, "Although the scale of borrowings has increased due to working capital burdens caused by copper price volatility and capital expenditures (CAPEX) for capacity expansion, the company has maintained a strong financial structure based on improved earnings power centered on the defense segment, and its financial coverage indicators are also at a solid level."

The agency further stated, "Despite working capital burdens stemming from copper price volatility, Poongsan is expected to maintain strong financial stability, considering its improved cash generation and the fact that most of the major large-scale investments for capacity expansion were completed last year."

However, the agency noted that future monitoring will be needed regarding potential business structure reorganization. Korea Ratings·KR stated, "Although the current review of selling the defense business appears to have been suspended, there is still potential for changes in the business portfolio and financial structure depending on additional decisions or actions related to business restructuring. Therefore, ongoing monitoring will be necessary."

Meanwhile, NICE Investors Service also upgraded Poongsan's long-term credit rating from the previous 'A+ (Positive)' to 'AA- (Stable)' on April 9.

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