This year, with a series of worker deaths, concerns are rising about the credit rating of POSCO E&C, which President Lee Jae-myung has even mentioned 'license cancellation.'
According to the credit rating industry on the 10th, two out of the three major domestic credit rating agencies (NICE Investors Service, Korea Ratings, Korea Credit Ratings) have recently published reports expressing concerns about the creditworthiness of POSCO E&C.
The reason the credit rating agencies wrote these reports is that, although no specific sanctions have yet been decided against POSCO E&C, the already emerging reputational risks could negatively impact profitability.
Korea Credit Ratings noted in the report, 'Concerns arise over the possibility of weakened competitive bidding capabilities and reputational risks due to diminished reliability in fair management and safety accident control.' It also predicted, 'If negative perceptions regarding brand credibility, which is core to competitive bidding, and construction capabilities continue, as well as delays in new bidding activities and a decrease in bidding volumes, it will lead to a fundamental weakening of business competitiveness.'
Earlier, Korea Ratings also published a report stating, 'With the weakening of the overseas bidding pipeline and decreased affiliate investments, the expanded reputational risk could degrade competitive bidding capabilities.' It also announced the possibility of increased cost burden due to a decrease in construction progress and expenses related to penalty for delay as a result of indefinite work stoppages.
Currently, the credit rating assigned to POSCO E&C by the three credit rating agencies is A+, with an outlook of 'stable,' and the credit rating has not been downgraded immediately due to this incident. Typically, credit rating agencies adjust credit ratings only after profitability declines are reflected numerically in performance even if the risks emerge.
However, following the collapse of the I-Park construction site in Hwajeong-dong, Seo-gu, Gwangju, in 2022, involving HDC Hyundai Development Company, and the collapse of the underground parking lot of the apartment complex in Geomdan, Incheon, in 2023 associated with GS Engineering and Construction, both companies had their credit ratings downgraded from A+ to A afterwards. A decline in creditworthiness increases the cost burden when raising funds in the market, such as through corporate bond issuance, thereby weakening the ability to secure funding.
Meanwhile, recent transactions of corporate bonds of POSCO E&C in the over-the-counter market have also decreased. According to Yonhap Infomax, there have been no over-the-counter transactions above 1 billion won since the 3rd of last month. The stock price of POSCO Holdings, the largest shareholder of POSCO E&C, dropped nearly 6.6% from 316,500 won on the 29th of last month, when President Lee Jae-myung publicly criticized the company in the Cabinet meeting, to 295,500 won on the 8th.