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Moody’s Downgraded POSCO’s Credit Rating by One Notch to Baa2
Challenged Credit
Moody’s Downgraded POSCO’s Credit Rating by One Notch to Baa2
  • By matthew
  • November 26, 2013, 09:26
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Moody’s has downgraded POSCO’s foreign currency bond rating by one notch from “Baa1” to “Baa2.”

Citing Korea’s #1 steelmaker’s high level of debt and industry uncertainties, Moody’s said on November 25 that it has reduced POSCO’s foreign currency bond rating to Baa2 from Baa1, while also downgrading its senior unsecured shelf rating to Baa2 from Baa1. 

“The rating fall also reflects our expectation that POSCO’s financial leverage, despite a gradual improvement, will remain elevated and weak for the Baa1 rating level over the next one to two years,” Moody’s said in the statement.

Given the persistent weakness in the steel industry home and abroad – a situation that will hinder any recovery in POSCO’s core steel margins – the improvement in the company’s profitability would remain modest in the next two years, despite Moody’s expectation that POSCO will achieve robust growth in earnings from its non-steel businesses and benefit from its large expansion in steel capacity.

Moreover, the company’s moderate profitability and its sizable investments of over-annual-averaged 5 trillion won (US$4.7 billion) will constrain its ability to generate positive cash flow and reduce its financial leverage, it said.

“Despite the challenges facing the company, the rating acknowledges POSCO’s dominant position in Korea’s steel sector, its diversified product mix, and globally competitive cost position,” Moody’s added.