Hong Kong, February 01, 2012 -- Moody's Investors Service says that LG Chem Ltd's moderate operating
results in fourth-quarter 2011 are broadly in line with expectations
and therefore will not have any impact on its A3 issuer rating and stable
outlook.
The company reported operating income of KRW507 billion in the quarter,
down 30% from the previous quarter and down 10% year-on-year.
For 2011, operating income remained almost flat year-on-year,
although revenue growth was strong at 16%.
"The lower operating income was driven primarily by worsening operating
fundamentals for major petrochemical products. This was partly
mitigated by the relatively strong performance of the information &
electronic materials business," says Chris Park, a Moody's
Vice President and Senior Credit Officer.
"However, despite the uncertainties related to macroeconomic
conditions globally, the company's robust financial profile
continues to provide a considerable headroom for the A3 rating,"
he adds.
LG Chem's debt rose about 20% year-on-year
in 2011 on a reported basis, mainly due to the large capex and working
capital deficits that stemmed from elevated raw material prices.
The higher debt, along with a flat growth in earnings, led
to an increase in its financial leverage--as measured by adjusted
debt/EBITDA--to around 0.8x in 2011, from 0.7x
in 2010.
Its retained cash flow/debt also moderately weakened to about 100%
from 118%. Nonetheless, its current financial metrics
continue to solidly position the company at the A3 rating level.
Moreover, LG Chem's relatively strong performance compared
with its domestic petrochemical peers in fourth-quarter 2011 highlights
its business stability, underpinned by its broad diversification
in products and end-markets.
Moody's expects that additional growth in capex will lead to an
increase in debt over the next couple of years, resulting in a further
rise in financial leverage, on the basis of a pro-rata consolidation
of the joint-venture investment in Kazakhstan.
However, the company would be able to contain the increase in leverage
to a modest level of about 1x as earnings will likely improve on the back
of the expected turnaround in the petrochemical business and fresh earnings
contribution from LCD glass.
The principal methodology used in rating LG Chem was the "Global
Chemical Industry Methodology" published in December 2009.
Please see the Credit Policy page on www.moodys.com for
a copy of this methodology.
LG Chem, based in Korea, is one of the world's major chemicals
companies, with 12 manufacturing locations in six countries.
Although it also has non-chemical businesses (such as electronic
materials and batteries), its chemical business is the dominant
driver of its revenue and earnings.
Chris Park
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077
Gary Lau
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077
Releasing Office:
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077
Moody's: No rating impact from LG Chem's moderate 4Q results