Korean firms at risk of credit rating downgrade on Legoland woes
Ye-Jin Jun and Hyun-Ju Jang
Nov 13, 2022 (Gmt+09:00)
South Korean companies are at risk of credit rating downgrades as the fallout of a debt default by the domestic developer of a Legoland theme park rattled the country’s money markets, undermining their financial stability.
Their credit ratings are expected to be lowered next year as they have already been facing bearish economic factors such as rising interest rates and a ballooning trade deficit.
Korea Investors Service, an affiliate of Moody’s Investors Service, said on Thursday it revised the outlook to negative from stable for a potential cut in the AA+ rating of Lotte Chemical’s non-guaranteed debt.
Lotte Chemical’s debt to earnings before interest, taxes, depreciation, and amortization (EBITDA) ratio, a key measurement for a firm’s ability to pay off its incurred debt, surged to 4.3 times in the first half of this year from 1.5 times in 2021, indicating the company’s debt load became heavier.
Korea Investors Service also revised the outlook to negative from stable on the AA rating of the non-guaranteed debt issued by Lotte Corp., the holding company of the country’s fifth-largest conglomerate.
Lotte’s affiliates were not the only victims of the default. Credit ratings of other major companies such as SK Hynix Inc., Hanwha Life Insurance Co., Netmarble Corp. and Hanon Systems were already cut.
Domestic credit rating agencies put some 20 companies on their watchlists for potential rating downgrades. Risks of rating cuts of life insurers also grew due to the recent turmoil in the local bond markets by a small player.