Korean Firms' Foreign Currency Bond Spreads Increasing Fast
S&P and Moody’s have become more pessimistic about the credit ratings of no less than 45 South Korean companies for the past three months that followed the outbreak of COVID-19. For reference, the number stood at 29 even after Lehman Brothers went under in 2008.
According to investment banking sources, the international credit rating agencies have reviewed the credit ratings of South Korean companies since late January. The number of companies subject to the review was two in January, 11 in February and 15 in March. It is 17 this month. A lowered credit rating is highly likely to entail serious repercussions such as companies in the black going bankrupt for a short-term liquidity shortage.
Back in 2008, the two credit rating agencies lowered the credit ratings of seven South Korean companies, adjusted the outlooks of 17 and considered lowering the ratings of two. This year’s figures are eight, 14 and 23, respectively. The 23 include major corporations such as Hyundai Motor Company, SK Innovation, LG Chem, KCC and Mirae Asset Daewoo.
Under the circumstances, the foreign currency bond spreads of South Korean companies are increasing fast. For example, the yield gap between POSCO’s five-year U.S. dollar bond and the five-year U.S. Treasury bond more than doubled from 1.07 percentage points to 2.16 percentage points from July 12 last year to April 22 this year.