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Announcement:

Moody's comments on POSCO's 2011 results, investment plan

Global Credit Research - 07 Feb 2012

Hong Kong, February 07, 2012 -- Moody's Investors Service says that POSCO's moderate operating results in 2011 and investment plan for 2012 will not have any immediate impact on its A3 rating and negative outlook.

Based on POSCO's reported operating income of KRW5.4 trillion in 2011, Moody's estimates that adjusted EBITDA decreased by 12% year-on-year in 2011. As a result of this decline and a 27% increase in debt, adjusted debt/EBITDA grew to about 3.6x in 2011, from 2.6x in 2010, while EBIT/interest dropped to 7x, from 8.9x.

"POSCO's moderate financial results are broadly in line with expectations and have been factored in the current outlook, which was revised to negative from stable last November," says Chris Park, a Moody's Vice President and Senior Credit Officer.

Moody's expects the company's profitability to remain weak in 2012, given the adverse structural developments in the region, such as overcapacity and volatile raw material prices, which dampen its bargaining power over customers.

In addition, it plans to increase investments to KRW8.3 -- 9.5 trillion for 2012, from KRW8.1 trillion a year earlier. Consequently, Moody's expects its debt/EBITDA to remain above 3.5x, and EBIT/interest of about 6x in 2012, excluding any deleveraging activities. These ratios are below the levels that are required to maintain the A3 rating.

These concerns are partly alleviated by the management's increased commitment to reduce financial leverage. In its recent result announcement, the management said that it intends to maintain its A3 rating and lower leverage to 3x in the next 12 months through various deleveraging initiatives, such as sales of non-core assets, treasury shares and stakes at subsidiaries. But, there are uncertainties about the timing and the scale of its deleveraging initiatives.

Moody's will continue to monitor the developments, including its ability to scale back investments, any benefits from falling raw materials, the execution of deleveraging initiatives, and cash flow contribution from new businesses.

If POSCO fails to take appropriate measures to address its high financial leverage, then a downgrade is possible. Moody's will consider the company's results for the next two-three quarters as the indicator of confirming its ability and willingness to delever.

The principal methodology used in rating POSCO was the Global Steel Industry methodology published in January 2009. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

POSCO is one of the world's largest steel producers, with a dominant market position in Korea. It manufactures a broad range of steel products, including hot-rolled products, plates, wire rods, cold-rolled products, silicon steel sheets and stainless steel products.

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 comments on POSCO's 2011 results, investment plan
No Related Data.

 

© 2013 Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S"). All rights reserved.

 


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