Credit rating downgraded this year, number of companies decreased, but number of cases increased by 48%

(Seoul = Yonhap News) Reporter Jeong Hoe-in = The number of companies whose credit ratings were downgraded this year decreased compared to last year, but the number of rating downgrades by individual credit rating agencies increased by nearly 50%.

In particular, as major affiliates of JoongAng Group began corporate rehabilitation procedures, their credit ratings fell sharply. Excluding these, the number of companies in the manufacturing and electronics industries whose credit ratings were downgraded increased.

According to the credit rating industry on the 11th, the number of companies (excluding duplicates) that had their corporate bond and commercial paper (CP) credit ratings or forecasts downgraded as of this year was 29, a slight decrease compared to 32 in the same period last year.

On the other hand, the number of downward adjustments by the three rating agencies (Korea Ratings, Korea Credit Rating, and NICE Ratings) increased by 48% from 48 last year to 71 this year.

This figure counts one case in which multiple credit rating agencies lowered a company's rating, or the rating of the same company was sequentially lowered as its credit rating continued to deteriorate.

The deteriorating credit rating of JoongAng Group's affiliates had a significant impact on the significant increase in the number of downgrades this year.

There were a total of 38 CP rating downgrades for six companies in the Joongang Group, including JoongAng Ilbo, JoongAng Ilbo S, Content JoongAng, JTBC, SLL JoongAng, and Megabox JoongAng, accounting for more than half (54.5%) of the total number of downgrades this year.

JoongAng Group's serial rating downgrades began in earnest last June following the default of some affiliates and the application for corporate rehabilitation procedures.

In the meantime, JoongAng Group has been refinancing maturing loans through corporate bonds and liquidated securities and supplementing liquidity by providing financial support to affiliates. However, as funding was disrupted, the liquidity problem of one affiliate was transferred to the burden of other affiliates.

When the maturity of Megabox Central-related securitized securities returned, Content Tree Central [036420] directly acquired KRW 62 billion, showing high financial correlation between affiliates, and rating agencies assessed that the overall liquidity risk of the group, response to maturity of loans, and uncertainty in principal and interest repayment had increased after the application for rehabilitation.

In addition, the rating downgrade made it more difficult to raise new funds, increasing the burden of refinancing, and a vicious cycle occurred in which credit ratings deteriorated again.

In the case of SLL Central, the CP grade went down from A3 to B+ and then to C again, and Megabox Central and Content Tree Central also went down from B grade to C or D grade.

Accordingly, this year's credit rating downgrades were not widespread across the market, but rather the large-scale credit events that occurred at JoongAng Group increased the overall number of downgrades.

In fact, excluding the JoongAng Group, there were 33 downward adjustments this year, a 31.3% decrease from 48 last year.

This shows that this year's credit rating downgrades were concentrated on specific groups where large-scale credit incidents occurred rather than widespread throughout the market.

However, excluding JoongAng Group, the credit rating downgrade of manufacturing and electronics companies was noticeable by industry.

This year's downlist includes Clean Nara [004540] (BBB → BBB-), Daejin Advanced Materials [393970] (B+ → Negative Monitoring), Lotte Aluminum (A2 → A2-), Daedong [000490] (BBB+ → BBB), SK IE Technology [361610] (A → A-), Included are SK Nexilis (A2 → A2-) and Ecopro [086520] (A2, stable → negative).

In particular, as many companies related to secondary batteries and advanced materials, such as Daejin Advanced Materials, SK IE Technology, SK Nexilis, and EcoPro, are included, the sluggish business conditions in related industries appear to have affected corporate credit ratings.

On the other hand, the petrochemical industry, which was the focus of credit rating downgrades last year, has relatively calmed down this year.

Last year, five companies, including Lotte Chemical, Hyosung Chemical, SK Advanced, SKC, and Huvis, were downgraded, but this year, it was reduced to two, including Lotte Chemical [011170] (AA-, stable → negative) and Yeocheon NCC (A- → BBB+).

However, some companies, such as Lotte Chemical and Ecopro, have seen their credit ratings drop this year as well as last year, leading to prolonged sluggish business conditions and prolonged financial burden.

Five companies had their credit ratings downgraded for two consecutive years, including Lotte Chemical (AA, negative → AA-, negative), NH Savings Bank (A, stable → A-, stable), EcoPro (A, negative → A-, negative), and Com2uS Holdings [063080] (A3+ → A3-).

An official from the credit rating industry said, "The increase in the number of downgrades this year largely reflects the liquidity problems of some groups, so it is difficult to say that corporate credit has deteriorated overall. However, in industries where recovery is delayed, such as secondary batteries, it is necessary to continue to monitor the impact of performance and financial burden on credit rating."