Moody's: Korean non-financial corporates' stable credit quality supported by steady economic growth

Moody's Investors Service says that its outlook for rated Korean non-financial corporates is stable for 2017, supported by steady economic growth, low commodity prices and the companies' competitive edges.

"We expect financial leverage to remain broadly stable or slightly improve for most rated companies, backed by stable earnings and prudent investments," says Chris Park, a Moody's Associate Managing Director.

"However, conditions vary by sector. Fundamentals for the telecom, refining and chemical sectors will remain favorable, but challenges will continue for the retail and steel sectors," adds Park.

Moody's conclusions are contained in its just-released 2017 outlook presentation for Korean non-financial corporates.

Moody's expects Korea's economic growth to remain largely stable at 2.5% in 2017, compared to an estimated 2.7% in 2016. Although down from the historical average, Moody's does not expect this slower growth to meaningfully hurt overall domestic demand.

This steady economic growth, combined with stabilizing commodity prices and the companies' competitive edges, will result in stable or modestly increasing earnings for most rated companies.

Stable earning and/or manageable capex levels in turn will lead to stable or slightly improving financial leverage across most sectors, although leverage will remain elevated for companies in the steel, retail and utilities sectors.

The rated corporates' solid credit profiles will support their continued strong access to the domestic and international financial markets.

In addition, low domestic interest rates will keep the funding environment favorable to help companies improve interest coverage.

The credit quality of most rated government-related issuers (GRIs) and their subsidiaries will also remain stable, because the Korean government's (Aa2 stable) public-sector reform plan, announced in June 2016, calls for only moderate changes in the operations of most companies.

Major external factors that could pose downside risks to the stable outlook include potentially increasing protectionist policies in advanced economies and a slowdown in China and/or advanced economies.