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POSCO Retains Moody’s Credit Rating in COVID-19

2020/08/03

l Moody’s Investors Service states that despite the decline in 2Q earnings, POSCO has maintained its credit rating owing to the prospect of better performance in 2H and its solid financial structure
l <APAC Steel Outlook> introduces POSCO as a steelmaker with solid financial status in the COVID-19 issue

POSCO (CEO Jeong-Woo Choi) was affirmed its current credit rating of Baa1 (Stable) in Moody’s regular evaluation this year.

This is in contrast to Moody’s, which deteriorated the credit ratings of competing steel companies, taking a negative position on the steel industry.

POSCO’s 2Q operating profit in the steel sector recorded a decrease following weak demand for automotive steel — which was previously a major seller with high profitability — caused by COVID-19. However, Moody’s analyzed that the company’s operating profit in other businesses was relatively favorable, similar to that of last year’s 2Q record.

In the background of maintaining POSCO’s credit rating despite deteriorating operating results lies the company’s response to the COVID-19 crisis, solid financial structure with low debt, and high financial flexibility due to the possession of high-purchase funds.

POSCO has been putting the highest priority on cash-flow management since the spread of COVID-19, resulting in a stable financial structure. At its Q2 regulatory filing on July 21, POSCO reported that its financial soundness has strengthened with cash balance recording 12.064 trillion KRW with a debt-to-equity ratio of 26.9% on a separate basis. On a consolidated basis, cash balance amounted to 16.913 trillion KRW with a debt-to-equity ratio of 72.8%.

Moody’s expects POSCO to continue its efforts to improve business performance, implement prudent investment, and strengthen its management of working capital. Consequently, it foresees POSCO’s net debt/EBITDA to peak at 1.8 times in 2020 on a consolidated basis but settle to 1.5 times in 2021-2022. Based on the figures and analysis, Moody’s decided on Baa1 grade for the company.

Meanwhile, Moody’s introduced POSCO as an exemplary company with outstanding financial soundness in its report, “APAC Steel Outlook,” which deals with steelmakers in the Asia-Pacific region. The report mentioned that POSCO responded appropriately amidst the COVID-19 issue, with its solid position in the domestic market and cost competitiveness, and managed to secure sales performance and profitability compared to global competitors.

S&P, another global credit rating agency, also retained POSCO’s credit rating at BBB+ Stable, the highest-level among global steelmakers. S&P reported that the evaluation is based on the following factors: 1) POSCO’s operational efficiency that maintains its cost competitiveness, and 2) its high value-added product lines, which support steady profitability.

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