Nearly half of low-quality corporate bonds downgraded this year: data

SEOUL, Nov. 20 (Yonhap) -- Nearly half of low-quality corporate bonds in South Korea saw their credit ratings downgraded by local appraisers this year, largely due to the prolonged downturn in three key industries -- shipbuilding, construction and shipping, data showed Wednesday.

The credit ratings of 14 out of 29 firms whose bonds are graded as "speculative" were revised down in the year to September, at a proportion of 48.3 percent, according to the data by the Korea Investors Service Inc. (KIS), the local unit of Moody's Investors Service Inc.

The data are based on rating evaluations on a total of 357 companies, of which 50 players had rating adjustments at least once this year.

The KIS rates corporate bonds in 10 different bands, with an AAA on the top notch and a D at the very bottom. A corporate debt with a BB rating, the fifth-highest, or below is tagged as speculative, meaning it holds substantial risks of default.

The high percentage of downgrades in speculative bonds is the second highest portion after the 55.3 percent tallied in the aftermath of the Asian financial turmoil in 1998, the data showed. Only one speculative bond had its rating upgraded by the appraiser this year.

The worsening credit statuses of low-quality corporate bonds are attributed to uncertainties about the outlook of the ailing sectors by which the bulk of the debts were issued -- shipbuilding, construction and shipping industries.

"Many shipping and construction firms saw their bond ratings fall sharply due to excessive investments that brought cash shortages," said a credit analyst at the KIS.

Market watchers also cited the overall, prolonged economic slump as a factor that made investors flock to safer assets as opposed to those that entail more risks.

The affected companies included: STX Corp, STX Pan Ocean Co., DSME Construction Co. Hyundai Merchant Marine Co. GS Engineering