More big Korean companies are expected to face credit rating downgrades in the coming year due to the deteriorating business environment caused by trade disputes, according to Moody's Investors Service, Tuesday.
In its corporate credit review report, the global ratings agency said that of the 24 private-sector Korean companies, 13 have negative outlooks or are under review for a downgrade. It said there are no positive outlooks.
"We expect companies' credit quality to weaken further during the next 12 months, given the continued weakness in industry conditions amid trade tensions and slowing economic growth," Moody's said.
"Companies can reduce the pressure on their credit quality by paying debt with proceeds from asset sales or reducing capital spending."
The companies facing a negative outlook include SK hynix, LG Chem, SK Global Chemical and Emart.
"The ongoing U.S.-China trade dispute will continue to negatively affect the earnings of many export-oriented companies," Moody's Vice President and Senior Credit Officer Yoo Wan-hee said. "This will be particularly evident in the technology and chemical sectors, where firms typically export large amounts of commodities and components to China.
"Korea's escalating trade tensions with Japan are unlikely to have a significant impact on rated companies' earnings, as we expect Japan's export controls to result only in administrative delays in supplies."
In the first half of 2019, the agency said that 19 non-financial companies in Korea among 27 suffered credit-negative results. It said only five showed credit-positive results and three reported credit-neutral results.
"Industry fundamentals deteriorated during the first six months of this year, in particular among the cyclical sectors where rated Korean companies operate," Moody's said.
"The deterioration was most severe in the memory chip, refining and petrochemical sectors amid sluggish demand driven in part by weakened business sentiment. The steel sector also weakened in light of soft demand and a rise in raw material prices."