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.