Credit Rating Dictates Ability To Raise Money

Financial markets are showing signs of polarization, favoring the most healthy companies in terms of interest charges and with credit worthiness determining where investment funds flow, a recently released report says.

Hyundai Research Institute's report, "Polarization of Economy," says that because of an increasing number of risk averse investors in the bond market, the three year corporate bond rates of companies with AA- rating fell to 7.2 percent in March from 9.9 percent last May. In contrast, the rate of companies with the lowest rating, BBB-, rose to 12.1 percent from 11.7 percent for the same period.

Firms with A or higher rating, a quarter of the total number of companies, accounted for 60 percent of bond issue amounts, but firms with BBB rating or lower, right above the lowest rating, accounted for 40 percent. The ratio of the bond issuance of high rating firms to low rating had been 30 percent to 70 percent.

The institute attributes this phenomenon to the steady erosion of financial conditions and the lowering of credit ratings after the currency crisis.

The number of firms with A rating or higher dropped to 107 last month from 202 in January 1997, but during the same period the number of companies with a BBB or lower rating rose fivefold. Firms with a BB or lower rating have been unable to issue bonds since the second half of 2000, and BBB-rated bonds, the lowest investment grade, have been shunned, which has made it difficult for nonblue chips.

by Lee Jae-kwang