POSCO had its long-term credit rating upgraded by Moody’s, a major international credit rating agency on June 21. The five-year-long credit rating of POSCO, Baa2, escalated to Baa1 with a Stable outlook.

Changes in Moody’s annual credit rating of POSCO over the years

This major shift is Moody’s first in five years from Baa1 to Baa2 back in 2013. Previous transition was seen last October when the outlook of POSCO’s credit rating, Baa2 was raised from ‘Stable’ to ‘Positive’.

Based on POSCO’s increase in sales of high-value-added products and the improvement of both domestic and overseas market conditions, Moody’s predicts its financial solvency will continue to improve throughout the next one to two years. A notable forecast last year was the decline in POSCO’s debt to EBITDA from 2.9 to 2.6-fold.

Other global and domestic agencies alike upgraded POSCO’s credit ratings in succession this year. On the same day as Moody’s, Korea Investors Service upgraded POSCO’s credit rating outlook from AA+ Stable to AA+ Positive due to its favorable business environment, the improvement in revenue, competitiveness, and diversified product portfolio.

POSCO’s 2018 credit agency rating upgrades

Whereas on June 11, international credit rating agency, Fitch, upgraded the credit rating a level higher from ‘BBB’ to ‘BBB+’. Thereafter, S&P rated POSCO as BBB+ Positive from BBB+ Stable. Likewise, major domestic and overseas agencies have assigned higher credit ratings.

POSCO pulled through the long haul to improve profitability by reinforcing the competitiveness of steel, securing financial health and increasing the sales of high-value-added products amid the global oversupply of steel and aggravation of trade protectionism.

This facilitated POSCO’s consolidated sales to reach $54 billion (60.6551 trillion won) last year, returning to similar level of sales after three years. Its operating profit amounted to $4 billion (4.6218 trillion won), the highest number since the past six years. Sales and operating profit increased 17.4% and 10.1% respectively which are $25 billion (28.5538 trillion won) and $2.5 billion (2.9 trillion won) each.

POSCO performance data

Take a look back at the 8 biggest stories from The Steel Wire in 2016.

1. World’s Most Competitive Steelmaker for the 7th Consecutive Year

POSCO was once again named the world’s most competitive steelmaker for the 7th consecutive year by World Steel Dynamics (WSD). In addition, POSCO became the only steel company in the world to be simultaneously listed on both the Global 100 Most Sustainable Corporations in the World and the Dow Jones Sustainability Index (DJSI).

2. POSCO Earns More than KRW 1 Trillion in Profits and Improved Credit Ratings

For the first time in four years, POSCO’s consolidated quarterly operating profits exceeded KRW 1 trillion. POSCO also saw significant improvements in the overseas subsidiaries as operating profits for Mexico’s CGL, Vietnam’s cold-rolling factory, and India’s POSCO Maharashtra shot up considerably last year. In addition, CEO Ohjoon Kwon’s corporate restructuring initiatives helped pave the way for improved credit ratings.

3. POSCO Expands with Thailand CGL and other Overseas Endeavors

Thailand CGL (Continuous Galvanizing Line), Southeast Asia’s first automotive steel sheet plant was completed in August 2016. In addition, POSCO expanded its overseas presence by signing agreements with Iranian steelmaker PKP to construct a FINEX-CEM integrated steel mill capable of producing 1.6 million tons a year.

4. Taejoon Park’s Induction into the Korean Business Hall of Fame

POSCO’s honorary chairman, Taejoon Park, was inducted into the Korean Business Hall of Fame. He was recognized for transforming Yeongil Bay in Pohang from what was considered a wasteland into a steel mill that produces more than 21 million tons per year.

5. POSCO Strengthens its Foundations with its Unique Innovation Model

POSCO’s unique innovation program, QSS+, part of POSCO’s POSTIM, celebrated its 10^th anniversary. Compared to previous years, the number of ideas suggested by employees tripled, and six smart factory pilot activities were also promoted. A ‘special compensation system’ was also implemented to award outstanding IP projects.

6. A Culture of Shared Growth is Set into Motion through “Human Solutions”

In 2016, POSCO’s advanced Solution Marketing and World Premium Products reached new heights. At the 2016 POSCO Global EVI Forum, customers heard from experts and industry leaders about POSCO’s unique approach to building proactive steel solutions for its customers. And in 2016, sales of World Premium Products reached a record high and accounted for 48.1% of POSCO’s total sales.

7. POSCO Completes its 4^th-generation Synchrotron Radiation Facility

POSCO completed its 4th-generation synchrotron radiation facility in September, the third of its kind in the world after America and Japan. With the accelerator, researchers can capture movements as brief as a femtosecond (1/1,000,000,000,000,000 of a second). POSCO has high hopes for the accelerator to play a role in future pharmaceutical research & development, biotechnology, clean energy, IT, new material technology, and semiconductors.

8. A Fresh Start as POSCO Daewoo

Daewoo International, incorporated by POSCO Group in 2010, announced its new name, POSCO DAEWOO, as a step towards establishing itself as a leading global trade company. Soon after, POSCO Daewoo signed agreements with a gas-fired powerplant in Myanmar, an Indonesia state-owned shipyard, the Ministry of the Interior of Peru, and the Brazilian navy.

“POSCO’s ratings outlook was upgraded due to its improved financial soundness from regaining positive results and reducing debt,” remarked Joe Morrison, Vice President of Moody’s. “We anticipated that POSCO will sustain its stability for the next 12 to 18 months.”

Moody’s forecasted that POSCO’s operating profits this year before the upgrade will increase by approximately 25% year on year, and its overall debt will decrease by 14%. Furthermore, the net debt to EBITDA (earnings before interest, taxes, depreciation, and amortization) ratio is expected to be approximately 3.8:1, which indicates a decline compared to last year’s 4.7:1. The times interest earned ratio of EBIT (earnings before interest and tax) is expected to amount to 4.1:1 this year, which is an improvement from 3.2:1 in 2015. Moody’s analyzed that this financial ratio meets the requirements for POSCO’s “Baa2” rating.

This upgrade of ratings was significantly affected by POSCO’s Q3 earning surprise, according to Moody’s. The fact that POSCO’s Q3 operating profit exceeded 1 trillion KRW, due to increased sales of World Premium (WP) products and prices of steel products, had a great influence on the ratings upgrade. The Q3 results show a 58% increase year on year.

Moody’s had previously issued a negative rating to POSCO’s credit ratings outlook in February due to decreased profitability caused by oversupply. POSCO has steadily committed to restructuring since the inauguration of POSCO CEO Ohjoon Kwon in 2014, and recovered the outlook to stable in less than a year.

Global credit ratings consist of credit information provided by specialized credit rating agencies for investors by fairly analyzing and evaluating the management conditions and financial structure of public institutions and private companies worldwide.

POSCO Exceeds KRW 1 Trillion in Operating Profits in Third Quarter of 2016

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