Scandal spreading as Moody's warns of possible SK Corp. downgrade
Scandal spreading as Moody's warns of possible SK Corp. downgrade
Jun Kwanwoo, Agence France-Presse, Seoul
Moody's Investors Service warned on Thursday of a possible downgrade of the ratings of SK Corp., flagship of South Korea's SK Group, amid fears of a credit run on the country's third largest business group amid a massive accounting scandal.
The U.S.-based global risk evaluator said it placed the Baa3 long-term rating of SK Corp. -- South Korea's largest oil refiner -- on review for a possible downgrade, citing its business links to scandal-tainted SK Global, the trading arm of the SK Group.
Ten SK Group officials were indicted on Tuesday in relation to charges SK Global earnings were inflated by more than US$1 billion in 2001.
The Moody's downgrade of SK Corp.'s outlook triggered concerns of the scandal spreading to other group companies despite efforts by local creditors to contain the fallout.
Kim Seok-Dong, a senior Financial Supervisory Commission official, said there had been inquiries from foreign creditors about a possible default.
"Some foreign creditors have expressed a wish to retrieve debts from SK Group affiliates when they mature," he told journalists.
SK Global's local creditors, including Hana Bank, are moving to put SK Global under joint bank receivership in order to prevent a credit run and grant it debt roll-over while the company struggles to turn itself around.
"With the joint bank receivership set to focus on the firm's survival, the crisis over SK Global will not spread to the entire conglomerate," Finance and Economy Minister Kim Jin-Pyo said.
SK Group owner Chey Tae-Won has already made a written pledge to surrender all his shares in the conglomerate's units as collateral for debt.
"As a major trading counter-party, further problems at SK Global could elevate the operating uncertainty for SK Corp.," Moody's said in a statement.
SK Corp. is the largest shareholder of SK Global with 38.7 percent.
Analysts say Moody's downgrade of SK Corp. could see an estimated $1.6 billion of its debt securities become rated as junk bonds.
Moody's also said it would be seeking to clarify working capital arrangements at SK Corp. and the ramifications for its operating cash flow of the difficulties surrounding SK Global.
The review will also assess SK Corp.'s plan to improve its relatively weak cash flow and debt protection measures.
Moody's previously changed SK Corp.'s outlook to negative from stable to reflect the continuing difficulties facing domestic refiners as a result of the persistent excess of refining capacity in South Korea and Asia.
SK Corp. tried to reassure markets on Thursday, saying it has an ample liquidity. It has some three billion dollars ready to cope with the crisis, and could sell more assets and reduce investment to secure more cash.
SK Global on Tuesday hurriedly announced a plan to halve its total liabilities to 2.3 trillion won within five years through restructuring, including asset sales.
SK Global owes some 5.8 trillion won to domestic creditors, and borrowings by its overseas operations stand at 2.4 trillion won, according to an official of the Financial Supervisory Commission.