Lotte Chemical Daesan Plant (Photo courtesy of Lotte Chemical)
SEOUL, March 11 (Korea Bizwire) — South Korea’s leading petrochemical companies are bracing for potential credit rating downgrades in the first half of 2025 as financial indicators continue to deteriorate due to a prolonged industry slump. The growing concerns come in the wake of Homeplus’ restructuring following a credit rating downgrade, raising alarms over broader credit risks in the corporate sector.
According to financial industry sources, major firms such as Lotte Chemical and HD Hyundai Chemical have already met key downgrade criteria set by credit rating agencies. Lotte Chemical, currently rated AA (negative outlook), is at risk of seeing its two unsecured bonds downgraded.
NICE Investors Service has set a threshold for Lotte Chemical’s net debt-to-EBITDA ratio, stating that a figure exceeding 5x would trigger a downgrade review. As of September 2024, the company’s ratio stood at 18.5x, a sharp increase from 7.4x at the end of 2023.
Lotte Chemical posted an operating loss of 894.1 billion won in 2024, marking its third consecutive year of losses. According to financial data provider FnGuide, analysts expect the company to record another operating loss of 247.4 billion won in 2025.
HD Hyundai Chemical, rated A (negative outlook), also meets downgrade conditions. NICE Investors Service considers a company at risk if its operating margin falls below 5% or its net debt reliance exceeds 50%. As of September 2024, HD Hyundai Chemical met both criteria.
Both Lotte Chemical and HD Hyundai Chemical also meet downgrade conditions set by other agencies, including Korea Investors Service (KIS) and Korea Ratings. While these benchmarks are not absolute, the likelihood of downgrades is increasing as agencies weigh various financial factors.
“The likelihood of downgrades for petrochemical firms with negative outlooks is high in the upcoming rating reviews,” said Choi Sung-jong, an analyst at NH Investment & Securities. “Lotte Chemical and HD Hyundai Chemical are prime candidates.”
Meanwhile, LG Chem, which already received a downgrade from global rating agency Standard & Poor’s (S&P), is also under scrutiny in the domestic market. According to its 2024 financial report, the company’s three-year average total debt-to-EBITDA ratio stands at 4.3x, surpassing the downgrade threshold set by NICE Investors Service.
However, LG Chem maintains a relatively strong EBITDA margin, which has so far helped it avoid a domestic downgrade. “Despite efforts to streamline non-core investments and divest assets, LG Chem’s high debt burden remains a key concern. Its ability to improve profitability will be a critical factor in future credit ratings,” Choi added.
The broader financial landscape for South Korean corporations is also showing signs of distress. The number of financially distressed firms—those with credit ratings of CCC or lower—has surged. Korea Investors Service reported that while only one to three firms typically fell into this category each year from 2015 onward, the number skyrocketed to 32 in 2023-2024.
Among these troubled firms, 27 had already met the criteria for excessive financial burden—defined as a net debt ratio exceeding 50% or a debt-to-equity ratio surpassing 300%—one year before their downgrades.
For instance, HD Hyundai Chemical’s debt-to-equity ratio surged from 88.5% at the end of 2019 to 232.8% by September 2024. LG Chem’s ratio also increased slightly, from 89.2% at the end of 2023 to 94.7% by September 2024.
As South Korea’s petrochemical sector struggles with persistent downturns and high debt burdens, market watchers are closely monitoring upcoming credit rating decisions that could further reshape the industry’s financial outlook.
Ashley Song (ashley@koreabizwire.com)
