KT, SKT may face credit downgrade

SK Telecom and KT, the country’s two leading wireless service providers, may face a credit ratings downgrade in the near future due to their excessive marketing war for new customers, Moody’s Investors Service said Tuesday.

The global ratings agency also said E-Mart and Lotte Shopping, Korea’s two retail giants, have been placed under its negative credit watch because strengthened regulations threaten their bottom lines.

During a press conference at the Westin Chosun Hotel in downtown Seoul, Tuesday, Chris Park, a Moody’s vice president, said, “If the excessive competition continues going forward, they will face a significant downward pressure on their credit ratings.

E-Mart and Lotte Shopping, which operate large discount store chains, will also face substantial downside risks on their credit ratings, Moody’s said.

“The two giant retailers are expected to grapple with unfavorable business conditions down the road,” Park said.

Major discount stores have been forced to close their doors twice a month, on every second and fourth Sundays, by municipal administrations across the country since early this year.

The measure was largely aimed at helping smaller mom-and pop stores and traditional markets, which have lost customers to retail powerhouses over the years. This has negatively affected E-Mart and Lotte Shopping, which have seen their bottom lines worsen.

“Additionally, the country’s petrochemical and refinery sectors are facing increasing downside credit risks due mainly to the slowing Chinese economy,” he said.

“Overall, the negative rating pressure will increase for local corporations. The cooling domestic economy, the strengthening of the Korean won and weakened export markets such as China are the main factors affecting Korean firms,” Park said.

Moody’s then said the outlook for Korea’s banking sector remains stable though with increasing risks that could arise as a result of contagion from the eurozone and knock-on effects from China.

“Despite rising household debt and the struggling construction and ship building industries, we have maintained a positive credit outlook for the country’s banking sector thanks to their ample liquidity,” said Choi Young-gil, a Moody’s vice president and senior credit officer. “However, if the eurozone falls into a deeper trouble and the Chinese economy crashes hard, local banks will face a serious problem.”

Tom Byrne, a senior vice president and regional credit officer at Moody’s, said Korea’s state debt has remained at a moderate level, adding if domestic polices continue to be sound and external factors are not hostile, the country’s debt to GDP ratio will decline in the future.

“Korea has demonstrated strong fiscal fundamentals, which will enable a relatively large degree of policy space to cope with the contingent domestic risks and external shocks. Its rating outlook hinges on containing the bank’s funding vulnerability and fiscal liabilities, while maintaining relatively strong economic growth,” Byrne said.

In August, Moody’s raised the nation’s sovereign credit ratings from A1 to Aa3. Since then, Standard & Poors and Fitch have also boosted Korea’s credit worthiness. <The Korea Times/Lee Hyo-sik>