Finances of Korean firms look worseThe creditworthiness of Korean companies is worsening at the fastest pace in at least a decade as the export-led economy falters.
Korea Ratings Corp., the local affiliate of Fitch Ratings, cut the credit scores of 40 local borrowers in the first half and raised the ratings of 5, the worst ratio since 1999. Similar scores at Nice Investors Service and Korea Investors Service were the weakest since 1998 and data going back to 2004 respectively.
Shipbuilding, oil refining, chemicals and steel were among industries with the most downgrades as exports fell for six months and manufacturers’ business confidence slid to the lowest since 2012. Overseas sales were curbed by cooling growth in China and a weaker yen that helped Japanese rivals, while a Middle East Respiratory syndrome outbreak hurt demand at home.
“Korea is highly dependent on exports and basically economic growth for major importers of Korean goods is weak except for the U.S, resulting in oversupply,” said Jung Won-hyun, head of rating policy team at Korea Ratings. “The downgrade trend will likely remain for a while.”
In a sign of continued pressure, Korea Ratings had a negative outlook on 24 companies as of June 30 compared with positive outlooks on only nine. For Korea Investors Service, an affiliate of Moody’s Investors Service, those numbers were 18 versus four.
The Bank of Korea trimmed its 2015 economic growth forecast to 2.8 percent and held its benchmark interest rate at a record low this month. The government said on July 3 that Korea will release 15 trillion won ($12.9 billion) through an extra budget to support businesses.
Stress is evident across the $1.4 trillion economy. Samsung Electronics, the crown jewel of Korea’s biggest business conglomerate, has endured seven quarterly operating profit drops as it struggled to lure enough customers away from Apple and Chinese rivals. Hyundai Motor’s sales have fallen for three straight months.
“Ratings companies have become more sensitive to companies’ earnings when it comes to grading,” said Kim Eun-gie, a credit analyst at NH Investment & Securities. “Worsened earnings coupled with ratings companies’ tightening standards made the worst upgrade to downgrade ratio this year.”
The ratings of Korea’s three biggest shipbuilders were downgraded this year. The three posted a combined 4.8 trillion won in operating losses in the second quarter. Ships accounted for 8.5 percent of the country’s total exports through June 20 of this year.