Hyosung Advanced Materials’ credit outlook lowered to Stable

The credit rating outlook on Hyosung Advanced Materials Corp. has been lowered one notch to Stable by South Korea’s two major credit rating agencies earlier this week, a setback to its much-awaited rating upgrade to A+.

Korea Investors Service Inc. and NICE Investors Service Co. on Monday downgraded the credit rating outlook on the industrial materials unit under Hyosung Group to Stable from Positive, with the rating of its corporate bond unchanged at A.

The demotion is expected to further delay the upgrade of its rating to A+, analysts said.

Hyosung Advanced Materials was set up in 2018 after Hyosung’s industrial materials business was spun off.

The rating agencies cited the company’s poor earnings as a major reason for the downgrade.

The industrial materials developer earned 151.6 billion won ($115 million) in operating profit in the first nine months of this year. That is 43% lower than that of the same period last year.

Its sales over the same period dropped 19% to 2.4 trillion won due to dwindling demand for its mainstay product tire cords.

The rating agencies blamed China’s strict COVID-19 lockdowns, a delay in new car production and high interest rates that have dampened consumer spending for the stagnant earnings.

The massive facility expenditure is another burden to the company, the rating agencies said.

The company has increased spending to bump up the output of high-value added carbon fiber, boasting 10 times the strength of steel, which is four times heavier.

Last year, it also decided to invest $191 million to expand tire cords' production lines at a factory in Vietnam.

A series of massive investments have swelled the company’s consolidated net debts to 1.78 trillion won in end-September from 1.51 trillion won in end-2021. As of September, the company’s debt ratio stood at 296.0%.

DIM OUTLOOK FOR HYOSUNG CHEMICALS

The credit rating outlook on its chemical sibling Hyosung Chemical Corp. has been also downgraded to Negative from Stable by Korea Investors Service.

This means its unsecured corporate bond’s rating could be demoted to BBB unless its financial conditions improve.

In June, the Korean credit rating agency already slashed the rating by one notch from A to A- largely due to the company’s loss-making subsidiary in Vietnam.

Hyosung Vina Chemicals, which makes propylene and polypropylene, posted a net loss of 313.7 billion won in 2022, with total capital erosion as of the end of March this year.

Hyosung Group is under a growing financial burden as its mainstay affiliates – Hyosung Advanced Materials and Hyosung Chemicals – are grappling with sluggish business conditions.

Hyosung is Korea’s No. 31 conglomerate controlling various businesses in textile and trade, heavy industry and construction, industrial materials, chemical, information and communication fields.

Hyosung Advanced Materials and Hyosung Chemicals shares ended down 0.7% at 370,500 won and 2.3% at 86,000 won, respectively, on Wednesday.

Write to Hyun-Ju Jang at blacksea@hankyung.com

Sookyung Seo edited this article.