S&P snips LG Chem

S&P said it lowered the ratings on LG Chem Ltd. and its debt to BBB+ from A-, citing increasing debt and burden on the balance sheet.

“We downgraded LG Chem to reflect the company’s aggressive financial policies amid a weak petrochemical market,” said S&P in a press release.

LG Chem’s capital spending in 2019 and 2020 is likely to far exceed its operating cash flows, which have historically been KRW 1 trillion to KRW 2.5 trillion annually. The increased spending is to meet LG Chem’s commitment to increase its battery capacity to about 100 gigawatt by end-2020 from 35GW as of end-2018. The company also plans on completing the expansion of its petrochemical capacity by 800 thousand tons in Yeosu, Korea, by 2021, S&P said.

The agency sees LG Chem’s 2019 operating cash flows to be about KRW 1.7 trillion and about KRW 3 trillion in 2020. Capex is expected to be about KRW 5.5 trillion in 2019 and KRW 4.5 trillion in 2020. “As a result of the debt-financed capex, we estimate the company’s adjusted debt will rise to about KRW 8.5 trillion by end-2020, from KRW 3.6 trillion in 2018. The debt-to-EBITDA ratio should also deteriorate to 2x–2.5x over the next two years from 1x in 2018 and 0.3x in 2017,” the agency said.

The outlook is stable.

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