E-Mart's credit rating drops on weak retail earnings

The credit rating of E-Mart Inc., South Korea’s top hypermarket chain operator, was downgraded to AA- by local agency NICE Information Service on Friday due to the company’s worsening financial conditions amid intensifying online and offline retail competition.   

It is the first time that E-Mart’s credit rating has fallen to AA- with a negative outlook since the company was spun off from Korean retail giant Shinsegae Group in 2011. NICE dropped E-Mart’s credit rating from AA+ to AA with a stable outlook in 2020.

The hypermarket chain’s e-commerce investment performance has been sluggish amid weakening offline business competitiveness, NICE said.

“The domestic e-commerce market structure is concentrated around Coupang Inc. and Naver Corp., and the synergy effects from E-Mart's omnichannel strategies are delayed,” the credit rating agency said.

The company’s financial burden will increase as it is planning a 1 trillion won ($744.3 million) investment to renovate and open outlets, develop a site around a major bus terminal in eastern Seoul and strengthen Starbucks’ Korean operation and convenience store business, NICE added.

E-Mart’s debt-to-equity ratio soared to 141.7% last year from 89.1% in 2018.

The hypermarket chain logged a 46.9 billion won operating loss in 2023, its first annual deficit since 2011. Earnings were hit by its subsidiary Sinsegae Engineering & Construction Co. amid the local real estate market downturn, NICE noted.

The construction unit, in which E-Mart holds a 42.7% stake, is facing rising costs and sluggish sales, particularly in the city of Daegu in southeastern Korea. Shinsegae Engineering & Construction posted 187.8 billion won in operating loss on an unconsolidated basis last year.

The construction firm’s credit rating was downgraded to A- from A  on Friday by Korea Investors Service, a 100% subsidiary of Moody’s Corp.

Write to Hyun-Ju Jang at blacksea@hankyung.com
Jihyun Kim edited this article.