International credit ratings agency Moody's has announced that it has downgraded South Korea-based steelmaker POSCO's foreign currency bond rating to Baa2 from Baa1, with a stable rating outlook.
Moody's said that POSCO's high level of debt, the challenging fundamentals it faces in the steel industry, and the significant uncertainties about its ability to implement significant deleveraging measures are key factors behind the rating downgrade.
Given the persistent weakness in the regional steel industry, which will hinder any recovery in POSCO's core steel margins, the improvement in the company's profitability should remain modest in the next two years, despite Moody's expectation that POSCO will achieve a robust growth in earnings from its non-steel businesses and should benefit from its large expansion in steel capacity.
According to Moody's, the rating could be upgraded over time if POSCO improves its financial profile by enhancing its earnings, curtailing its investments, and/or implementing substantial deleveraging initiatives. On the other hand, the rating could be downgraded if there is a continued decline in POSCO's earnings or it undertakes large-scale investments.