Posco downgraded to BBB+ by Fitch due partly to debt

Fitch Ratings said yesterday it downgraded the credit rating of Korea’s largest steel producer Posco to BBB+ from A-. The international agency also assigned the steelmaker a negative outlook.

“The downgrade reflects the deterioration in Posco’s financial leverage so far in 2012 and 2011, as a result of incurring high levels of debt to fund aggressive investments and weakened profitability,” the agency said in a statement.

“The negative outlook reflects low visibility and uncertainty regarding the likely recovery of the steel industry recovery in 2013.”

Fitch said the global steel industry, weighed down by a slowdown in the Chinese economy since the second half of last year, remains sluggish this year. Slow demand has compounded the effect of rising prices of raw materials to further shave profit margins on steel products, it said.

The Korean steelmaker’s Q3 operating performance has been “well below Fitch’s expectation,” it said. Posco earned operating profit of 2.9 trillion won ($2.67 billion) in the latest quarter, far below the 4.4 trillion won reported a year ago. The company said Q4 earnings are likely to deteriorate further.