U.S. credit rating agency Moody’s said Tuesday that credit outlooks for Korea’s nonfinancial corporations are stable and are likely to remain so for this year due to their austerity efforts and steady earnings. But it warned that a further slowdown in the Chinese economy could have a major impact on Korean exporters.
"Most rated companies are leaders in their respective markets and have stronger than average financial profiles, enabling them to cope better with external challenges,” Moody’s associate managing director Chris Park told reporters at a meeting in Seoul.
According to a report released by Moody’s Investors Service, nearly 70 percent of Korean firms have stable rating outlooks, which leads to an overall stable trend. However, negative actions will outnumber positive actions over the next 12 months, as 23 percent of them have negative outlooks, far exceeding the 9 percent with positive outlooks.
Modest improvements in many companies’ earnings from the lower base in 2015 and their austerity measures will drive stability in financial leverage, but weak macroeconomic conditions will increase challenges for some sectors such as retail, he said.
“Retailers’ ability to deleverage will be constrained by continued sluggish consumer spending, high capital expenditure as well as competition from other retail formats,” Park added.
The report comes after the country’s big three rating agencies -- Korea Ratings, Korea Investors Service and Nice Investors Service -- saw the worst year in credit quality of Korean firms, including financial corporations, in 2015.
The total number of rating downgrades by the trio stood at 168, the highest figure since 1999, as companies suffered deterioration in their earnings and financial states last year due to sluggish exports and domestic consumption that held back Asia’s fourth-largest economy.
Moody’s said that the impact of a further slowdown in the Chinese economy would be felt the most in the auto, chemical, steel and refining sectors, given their direct exposure to Korea’s largest trading partner.
Chinese policymakers have set a target of around 6.5 percent growth for 2016, while Moody’s forecast gross domestic product growth at 6.3 percent.
“Even domestic business-oriented companies, except for the telecommunications and utility sectors, are not immune, as weaker Chinese growth will hamper the domestic economy and consumption,” he said.
Park added that low commodity prices will continue to have a mixed impact on Korean companies.
It projected that most refining companies’ financial profiles will improve further this year, driven by healthy refining margins and low capital expenditure due to low oil prices.
Korean refiners such as SK Innovation and GS Caltex are expected to further improve their financial profiles owing to “robust earnings and working capital requirements,” while exploration and production companies will be hurt by the drop in oil prices, Park said.
By Park Han-na (
hnpark@heraldcorp.com)