Moody's: Korean non-financial corporates to show stable credit quality in 2016, despite soft macroeconomic conditions

Moody's Investors Service says its 2016 outlook for private-sector non-financial corporates in Korea is that these companies will show stable credit quality, despite soft macroeconomic conditions.

"The robust earnings that many Korean private-sector companies have shown in 2015 will continue into 2016," says Chris Park, a Moody's Associate Managing Director. "This situation, together with low capital expenditures, will lead to stable or modest improvements in their financial leverage."

Moody's notes that the low commodity prices globally will continue to support the earnings of a majority of Moody's-rated companies during 2016, mitigating the soft economic growth both domestically and globally.

Moody's points out that most rated companies demonstrate adequate financial flexibility and the historically low interest rates in Korea will keep the funding environment supportive for them.

Moody's expects that most Korean private-sector companies will maintain their current ratings through 2016, as seen by the 77% of stable outlooks for all private-sector non-financial corporates that Moody's rates in Korea.

However, the steel and retail sectors should continue to experience challenges, given the difficult fundamentals in the two industries.

"The key risk to the stable outlooks for a majority of Korean private-sector companies that we rate is a significant slowdown in China's GDP growth, which if it occurs, will have a material adverse effect on the credit quality of the companies in the refining, chemical, steel and auto sectors," adds Park.

As for government-related issuers (GRIs), Moody's says the Korean government's (Aa3 positive) increased oversight of corporate GRIs through its mid- to long-term financial management plan will help these GRIs curb rise in debt levels and maintain stable financial profiles.

Moody's views were presented at a briefing in Seoul on 18 November 2015.

As of 13 November 2015, Moody's portfolio of non-financial corporates in Korea comprised 22 private-sector companies and 16 GRIs or GRI subsidiaries.