Hong Kong, May 29, 2019 -- Moody's Investors Service has affirmed Lotte Shopping Co.,
Ltd.'s Baa3 issuer rating.
The outlook is maintained at stable.
RATINGS RATIONALE
"The rating affirmation reflects our expectation that Lotte Shopping's
credit quality will remain broadly stable and within the parameters of
a Baa3 rating over the next 1-2 years, as higher debt levels
will be largely offset by an increase in earnings," says Wan
Hee Yoo, a Moody's Vice President and Senior Credit Officer.
Moody's expects Lotte Shopping's operating income to increase
moderately in 2019 because of (1) a steady earnings contribution from
its core domestic department store business; (2) reduced losses in
its department store business in China following the closure of three
stores; and (3) the absence of the one-off restructuring expenses
it incurred in 2018.
Earnings in its domestic hypermarket and electronics retail businesses
will however remain under pressure in 2019, given stiff competition
from the e-commerce sector.
Compared to its hypermarket business, Lotte Shopping's department
store business should be better placed to fend off increased competition
from the e-commerce industry.
Moody's expects Lotte Shopping's adjusted net debt/EBITDA
to increase to 4.6x-5.0x over the next 12-18
months from 4.6x in 2018, as the company's reported
debt level (excluding lease liabilities) is likely to increase to around
KRW9.0 trillion by the end of 2019 from around KRW7.8 trillion
at the end of 2018.
This debt growth is mainly because of its recent acquisition of majority
stakes in two Lotte group affiliates, Lotte Incheon Development
Co., Ltd and Lotte Incheon Town Co., Ltd.
These two entities had combined reported debt of around KRW1.1
trillion at the end of 2018, thus raising Lotte Shopping's
financial leverage.
While this level of financial leverage remains consistent with its current
rating level, it provides little leeway for further deterioration.
The projected level of financial leverage also incorporates Moody's
estimates that the implementation of new accounting standards, as
of 1 January, 2019, increased the company's adjusted
net debt/EBITDA by around 0.5x compared to Moody's previous
standard adjustments, because of lower adjusted EBITDA and higher
lease-adjusted debt under the new standards.
Lotte Shopping's Baa3 rating reflects the company's leadership position
in the domestic department store industry, its diversification into
other retail businesses, such as hypermarkets and supermarkets,
and the likelihood of support from its parent, Lotte Corporation,
if and when needed.
These strengths are counterbalanced by the challenging operating environment
for its domestic hypermarket and electronics retail businesses,
the company's moderate profitability, and its weak financial
leverage.
Lotte Shopping's stable outlook reflects Moody's expectation that the
company's business profile will remain broadly stable and that any increase
in financial leverage will only be modest over the next 1-2 years.
Moody's could upgrade Lotte Shopping's rating if the company improves
its financial profile by enhancing its profitability and prudently managing
its investments, such that adjusted net debt/EBITDA improves to
below 3.5x on a sustained basis.
Moody's could downgrade Lotte Shopping's rating if the company's
profitability remains weak or if the company undertakes large-scale
investments, such that adjusted net debt/EBITDA exceeds 5.0x-5.5x
on a sustained basis.
The principal methodology used in this rating was Retail Industry published
in May 2018. Please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
Lotte Shopping Co., Ltd. is the leading retailer in
Korea by revenue. It owns the country's largest department store
and the third largest hypermarket network in terms of revenue.
The company also engages in other businesses such as supermarkets,
internet/TV home shopping, cinemas, premium outlet malls and
electronics retail.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides certain regulatory disclosures in relation
to the credit rating action on the support provider and in relation to
each particular credit rating action for securities that derive their
credit ratings from the support provider's credit rating.
For provisional ratings, this announcement provides certain regulatory
disclosures in relation to the provisional rating assigned, and
in relation to a definitive rating that may be assigned subsequent to
the final issuance of the debt, in each case where the transaction
structure and terms have not changed prior to the assignment of the definitive
rating in a manner that would have affected the rating. For further
information please see the ratings tab on the issuer/entity page for the
respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Moody's considers a rated entity or its agent(s) to be participating
when it maintains an overall relationship with Moody's. Unless
noted in the Regulatory Disclosures as a Non-Participating Entity,
the rated entity is participating and the rated entity or its agent(s)
generally provides Moody's with information for the purposes of
its ratings process. Please refer to www.moodys.com
for the Regulatory Disclosures for each credit rating action under the
ratings tab on the issuer/entity page and for details of Moody's
Policy for Designating Non-Participating Rated Entities.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
The first name below is the lead rating analyst for this Credit Rating
and the last name below is the person primarily responsible for approving
this Credit Rating.
Wan Hee Yoo
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
Client Service: 852 3551 3077
Chris Park
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 852 3758 1350
Client Service: 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
Client Service: 852 3551 3077
