A key metric of the creditworthiness of South Korean companies is at its weakest in at least a decade, and the worst may be yet to come due to the dramatic spread of coronavirus in the country.
The credit ratings of six Korean companies have been cut or received negative outlooks from S&P Global Ratings so far this year, and none have gotten better assessments.
That followed 13 negative actions on borrowers versus eight positive moves last year, the worst ratio since at least 2010, according to Bloomberg-compiled data.
“We expect negative rating actions for Korean companies to continue to far exceed the positive ones this year, with additional pressure coming from the coronavirus,” JunHong Park, Hong Kong-based lead analyst for Korean corporates at S&P, said in an interview.
The virus weakening consumer demand worldwide will hurt Korean exporters, he said.
South Korea has seen a sharp increase in coronavirus cases in the past week to more than 1,000 from just dozens, and authorities warned the fallout threatens the nation’s fragile economic recovery.
S&P lowered this month its forecast for Korea’s economic growth in 2020 from 2.1% to 1.6%, which would be the slowest expansion since the global financial crisis in 2009. Korean companies that were downgraded or got negative outlooks by S&P this month include E-Mart Inc, KCC Corp, SK Innovation Co, SK Global Chemical Co, Hyundai Steel Co and Hanwha General Insurance Co.
The slump in global consumer spending will drag down demand for smartphones and other IT devices, and that may delay the recovery in the semiconductor industry, Park said. Companies including automakers may also face additional supply chain disruptions, he said.
Tourist operators and retailers have been hard hit, and some airlines might face short-term liquidity pressure if they’re not able to get funding support from the government, according to Park.
One thing that could partly mitigate the negative impact on Korean exporters may be the nation’s currency, which has weakened so far this year, Park said.
S&P doesn’t see as likely a rapid worsening in debt scores.
Park isn’t expecting a major credit event like a default for now given there’s plenty of liquidity in the market and funding costs are low.
“While the virus impact will likely be huge overall, it will also likely be gradual, meaning that we don’t expect any multi-notch downgrades,” he said.
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