이 기사는 2022년 04월 20일 08:02 thebell 에 표출된 기사입니다.

South Korea’s credit rating agency Korea Investors Service downgraded HDC Hyundai Development Company’s credit rating and changed its outlook as the company is expected to show poor performance this year.

Korea Investors Service downgraded HDC Hyundai Development’s rating from A+ to A0 and changed the outlook from negative watch to negative last week, according to industry sources.

Market insiders said the credit rating agency’s downgrade was drastic as both credit rating and outlook were cut.

When the credit rating agency placed the Korean builder on a watchlist for possible further downgrade in January, it said the negative scenario started to unfold. Korea Investors Service cited changes in the business fundamentals such as order competitiveness and construction capacity and the possibility of setbacks at construction sites as major factors to keep an eye on.

“After a collapse at the construction site of the Hyundai IPark complex in Hwajeong in Gwangju, the company’s business competitiveness weakened and business variability greatly increased,” said Korea Investors Service. “The burden of repayment and refinancing of project financing asset-backed securities and corporate bonds is increasing amid weakening cash generating ability.”

The company initially planned to sell more than 20,000 households this year, but reduced the number to some 10,000 households after the accident.

HDC Hyundai Development’s poor financial performance is expected to continue. The builder’s operating profit halved in 2021 to 273.4 billion won ($221 million) from the previous year on a consolidated basis due to the collapse.

Other local credit rating agencies including Korea Ratings and NICE Investors Service are also poised to downgrade the company’s ratings. “The company has been placed on the watchlist for almost three months and its credit rating is highly likely to be downgraded as the situation hasn’t improved since January,” an industry source said.

Korea Ratings and NICE Investors Service placed the company on the watchlist for possible downgrades in January. It normally takes three to six months to be downgraded after being placed on the watchlist.

Market insiders expect other credit rating agencies may cut credit ratings on HDC Hyundai Development in a few days.

If HDC Hyundai Development’s credit rating is downgraded to A0 and the outlook is changed to negative, this would bring the company closer to the risk of repaying debts early.

According to the company’s consolidated audit report, the value of HDC Hyundai Development’s corporate bonds that have to be repaid early in case its credit rating is downgraded to A- or below is about 200 billion won. The amount of corporate bonds that contain a condition of early redemption when an event of default occurs on bonds other than the relevant bond amounts to 220 billion won. (Reporting by Ji-hye Lee)