Three credit rating agencies (Korea Ratings, Korea Credit Rating, and NICE Credit Rating) have downgraded the credit rating of LOTTE Chemical by one notch. The reason is that continuous operating losses have prevented the recovery of financial stability. As a result, the integrated credit rating of LOTTE Group has declined, leading to a one-notch downgrade of the credit rating of LOTTE Corporation, the holding company.
On the 30th, domestic credit rating agencies downgraded LOTTE Chemical's credit rating from 'AA (negative)' to 'AA- (stable).' As the credit rating of LOTTE Chemical, a core subsidiary, has fallen, the credit rating of LOTTE Corporation's unsecured bonds has also been decreased from 'AA- (negative)' to 'A+ (stable).'
The credit rating of LOTTE Corporation is calculated by taking the weighted average of the credit ratings of its main subsidiaries: LOTTE Shopping 'AA- (stable),' LOTTE Chemical 'AA- (stable),' LOTTE Wellfood 'AA (stable),' and LOTTE Chilsung Beverage 'AA (stable).' As the credit rating of LOTTE Chemical, which carries a high weight, has declined, the integrated credit rating has also decreased.
Korea Ratings stated that LOTTE Chemical is unable to recover its financial stability due to ongoing operating losses and that the prolonged oversupply situation is likely to delay any recovery in performance. They explained that while borrowing funds will be reduced as part of a self-rescue plan, financial stability is not expected to be restored in the short term.
Korea Ratings explained the downgrade of LOTTE Chemical's credit rating by saying, "Due to weak demand and expansion burdens over the past three years, persistent operational losses resulted from decreased profitability in the basic chemical sector amid a deteriorated supply-demand environment in the olefin sector. Although the expansion burden in China is expected to ease in 2024, the accumulated upstream supply burden has not been resolved, resulting in continued low operating rates and recorded losses."
They also noted, "In order to alleviate the financial burden, we are implementing self-rescue plans such as investment adjustments and asset sales. While these self-rescue plans will reduce borrowing funds and alleviate financial burdens, the recovery of fundamental operational cash generation is expected to be limited," and added that expecting a meaningful recovery in coverage ratios is unlikely.
Korea Credit Rating also pointed to prolonged operating losses and increased financial burdens from large-scale facility investments as reasons for downgrading LOTTE Chemical's credit rating. NICE Credit Rating commented, "Given that the economic downturn is expected to continue, profitability improvements will be limited, and considering the weakened operational cash generation ability, it will take time to improve debt repayment capacity," which was also reflected in their assessment.