Rating downgrades hit ’98 levels

The number of Korean businesses that suffered credit rating downgrades last year was the largest since the 1998 Asian financial crisis.

According to the Financial Supervisory Service (FSS) on Tuesday, 159 companies saw their ratings on non-guaranteed corporate bonds lowered last year. That’s the largest number since 1998, which holds the all-time record of 171. Only 26 companies saw their rating upgraded, which is the smallest since 1998’s 14.

The ratings are based on data from four Korean agencies: NICE Investors Service, Korea Investors Service, Korea Ratings and Seoul Credit Rating & Information.

The annual totals of companies with downgraded credit ratings have been increasing since 2010.

Even companies with the highest ratings have been affected. Last year, companies that maintained triple-A status shrank from 96.8 percent of all companies in that category in 2014 to 90.4 percent, while those with A ratings retreated from 85.6 percent to 78.1 percent.

Heavy industries suffered most.

“Most of the companies in industries that are struggling the most, including construction, refineries, chemicals and steel, saw their credit ratings drop,” an FSS official said.

As of last year, there were 1,114 companies with credit ratings, which was a drop of 35 companies, or 3 percent, from the previous year. Although the number of companies with ratings on their bonds has been increasing since 2004 - when the number was 699 - last year, it dropped, as fewer companies issued corporate bonds. Last year, companies issued a total of 40.9 trillion won ($36 billion) in corporate bonds, a 3.3 percent drop from the previous year’s 42.3 trillion won.

Among the bonds issued, those with ratings of AA or above accounted for 77.9 percent, followed by those in the A grade with 18.7 percent. Those with grades of BBB or lower only accounted for 3.4 percent of bonds that were issued last year.

Last year, eight companies that were rated BB or lower went bankrupt, bringing the bankruptcy rate of companies in that category to 7.3 percent. This was higher than 2014’s 4.15 percent and the first time the bankruptcy rate rose compared to the previous year since 2013.

No companies with ratings of BBB or higher filed for bankruptcy, which is an improvement from the 0.39 percent recorded in 2014. As a result, the overall bankruptcy rate of companies remained unchanged at 0.87 percent.

More companies are expected to have their ratings downgraded as the economy continues to struggle. Of the 95 companies that credit agencies have projected for changes, 31.6 percent, or 30 companies, are expected to see ratings move up, while 65 companies, or 68.4 percent, will likely see ratings drop.

LEE HO-JEONG [lee.hojeong@joongang.co.kr]