Downgrades dog builders and shippers

As their credit ratings slip, builders and shippers of all sizes are finding it increasingly difficult to raise capital.

Korea Ratings, NICE Investors Service, Korea Investors Service and other rating agencies have downgraded GS Engineering & Construction’s corporate bond last month from AA- to A+.

GS E&C, the nation’s fourth-largest builder in terms of capacity, posted net losses of 412.2 billion won ($365 million) due to an overseas project. With GS E&C’s credit rating at A+, only Hyundai E&C, Samsung C&T, Daelim Industrial and Posco E&C among major builders are rated AA or better, according to credit evaluators.

SK E&C, the construction arm of SK Group, also saw its credit rating go down from A+ to A0 last month. The company had net losses of 106.7 billion won in the first quarter.

The situation for shippers is no better. Credit evaluators recently lowered STX PanOcean, the nation’s largest bulk carrier under cash-strapped STX Group, from BBB- to BB+, meaning the corporate bonds from this company are no longer investment grade. Bonds rated BB+ and below are considered speculative grade.

Hanjin Shipping maintained its A- rating, but the outlook for the nation’s largest shipper is negative, according to NICE Investors Service. The credit rating agency in February lowered Hyundai Merchant Marine’s corporate bond rating from A to A-.

Insiders estimate the value of corporate bonds due this year at 4.4 trillion won for construction companies and 1.9 trillion won for maritime shippers.

Downgraded bonds must pay a higher yield. Although it varies, the yield difference between AA- and A+ bonds is about 0.4 percent.

“There is nothing we can do but hope our business gets better,” said a construction company official.

According to data from the Construction Economy Research Institute of Korea (Cerik) yesterday, the construction business sentiment index (CBSI) in May was 66.1, 3.3 points higher than the previous month. A CBSI below 100 points indicates industry pessimism.

A recent Korea Chamber of Commerce and Industry survey of 175 shippers found 30 percent were in danger of shutting down if the economy does not recover this year.

By Joo Kyung-don [kjoo@joongang.co.kr]