Hyundai Engineering put on watch for possible downgrade of credit rating due to huge losses - South Korean reports

This week, Hyundai Engineering, which suffered huge losses, is facing a risk of having its credit rating downgraded. Lotte Chemical, which received a payment guarantee,
NICE Credit Ratings has placed Hyundai Engineering, which suffered large losses, on the watch list for possible downgrade of its credit rating. Its rating remains at AA minus.
The Korea Corporate Evaluation Agency has lowered its outlook for the rating from "stable" to "negative." Hyundai Engineering's sales last year were 14.8 trillion won (US$16 billion), down from the previous year.
Although it increased by 13% compared to last year, it recorded a large loss in the fourth quarter of last year, recording an operating loss of 1.2 trillion won (about 121 billion yen).
This was due to additional costs incurred as a result of rising prices. As a result, Hyundai Engineering & Construction recorded an operating loss (on a consolidated basis) of 1.22 trillion won (US$1.2 billion) last year.
Niaring is a consolidated subsidiary of Hyundai E&C. This is the first time in 23 years since 2001 that Hyundai E&C has recorded an annual loss.
Hyundai Engineering recorded a net loss of 990.6 billion won (about 108 billion yen) last year,
This will amount to 25.5% of equity capital at the end of last year. As a result, the debt ratio is expected to rise from 108% at the end of 2023 to 243.8% at the end of last year.
The loss-making businesses are Indonesia's Balikpapan, Saudi Arabia's Zafrapro
The losses were incurred in the process of recalculating the estimated costs after construction had started. NICE Credit Rating has reviewed the reasons for the losses in the projects that are the subject of the losses and has
The committee also plans to examine the progress of Hyundai Engineering's overseas business and the possibility of future losses.
However, although Korea Corporate Evaluation has given a negative outlook for the rating, it does not believe that the reflection of this large-scale loss will create a liquidity risk.
The company explained that its liquidity response capabilities are excellent due to its asset base of 1.7 trillion won (US$1.857 billion) and the Hyundai Motor Group's good external credibility.
The impact of this loss on Hyundai Engineering & Construction's creditworthiness is also expected to be limited. Hyundai Engineering & Construction's actual control over Hyundai Engineering is low, so the impact on Hyundai Engineering & Construction's creditworthiness is expected to be limited.
The credit rating of Lotte Chemical's unguaranteed bonds was also revised upward from AA (positive review) to AAA (stable).
This is the result of unguaranteed public bonds being replaced by bank-guaranteed bonds. When taking into account the bond guarantee agreement, the creditworthiness of the bonds being assessed is estimated by Shinhan Bank, Kookmin Bank, and Woori Bank, which are the banks that provide the guarantee.
Lotte Chemical held a bondholders' meeting at the end of last year and passed a resolution to adjust the performance-related financial covenants in the bond management contract for the public offering of bonds.
The guarantee amount as of the start date of the guarantee was 2.1736 trillion won (US$2.374 billion), with Shinhan Bank providing 973.6 billion won (US$1.063 billion), Kookmin Bank providing 1.27 trillion won (US$1.063 billion), and the remaining 1.27 trillion won (US$1.047 billion).
Woori Bank and Hana Bank are each worth 400 billion won (about 437 billion yen).