Credit rating gap worsens between large, small companies

A growing number of financially troubled companies suffered credit rating downgrades in the first half of this year. Amid the eurozone debt crisis and Korea`s economic slowdown, the gap between large and smaller companies has widened in Korea.

According to Korea Investors Service, Korea Ratings and Nice Investors Service on Monday, 10 out of 82 companies with a "BB+" credit rating (speculative grade) saw their ratings decline while six went bankrupt. This means one of every five companies subject to appraisal by the three major credit rating agencies suffered a downgrade or bankruptcy. Just one company saw an upgrade among those with speculative grade. Among 45 companies whose credit rating was upgraded, 44 had a "BBB-" rating, or investment grade, and only one company had one below "BB+."

The gap between investment and speculative-grade companies also widened in bond default ratio. According to the Korea Financial Investment Association, the ratio was 0.45 percent for investment-grade companies last year, whereas the figure for speculative-grade companies was 5.62 percent. The ratio for the top grade companies was zero, but companies with the lowest top-grade rating of "B" or below accounted for 8.16 percent.

Small and medium companies were also having difficulty in fundraising. Investment-grade companies` bond issuance reached 48.68 trillion won (43.6 billion U.S. dollars) this year as of Thursday, but speculative-grade companies saw their issuance hit just 740.2 billion won (662 million dollars). Companies with a rating of "A-" or higher raised more than 46 trillion won (41.2 billion dollars) through bond issuance, but those with "CCC" or below saw no issuance.

A credit rating agency source said, "Large companies saw credit rating upgrades in this year`s first half while smaller companies suffered downgrades," adding, "This was caused by the increasing liquidity risk at financially troubled companies due to their worsening earnings and delayed economic recovery." The credit rating gap by income class also widened, with the portion of those in the top and bottom grades both rising.

constant25@donga.com