Moody's downgrades POSCO's rating to negative

Global ratings agency Moody's Investors Service said Tuesday that it downgraded POSCO's rating outlook to negative from stable, citing its sluggish 2015 earnings and continued oversupply in the Asian steel industry.

POSCO, South Korea's largest steelmaker, suffered a net loss on a consolidated basis for the first time in its history in 2015 amid weak demand and losses from equity ties with subsidiaries. The net loss was attributed to the overall downturn in metallurgy, along with a decrease in the value of assets, including foreign mines and losses associated with fluctuations in foreign exchange rates.

At the same time, only the metallurgical business of POSCO remained with a net profit of 1.32 trillion. won, up 15.7 percent from a year earlier.

“The negative outlook mainly reflects POSCO's lower-than-expected earnings in 2015 and the growing likelihood that POSCO's financial profile will remain weak for its Baa2 rating over the next 12-18 months, and challenging conditions in the Asian steel industry must continue to negatively impact earnings, ”notes Chris Park, Moody's vice president.

Moody 's expects POSCO's operating profit to experience further contraction this year amid constant supply glut from Korean and Chinese manufacturers. In the wake of the decline in oil prices, the forecast also remained negative for natural gas exploration and business development with partner Daewoo International Corp.

"Posco's efforts to increase value-added products and restructure its unprofitable subsidiaries will only partially offset these negative drivers," Park said.