S&P cuts credit outlook for POSCO on takeover bid

SEOUL, May 16 (Yonhap) -- Standard & Poor's Ratings Services (S&P) lowered its credit outlook for South Korea's top steelmaker POSCO to negative from stable on Monday, citing its ongoing bid for the top local logistics firm.
POSCO is seeking to purchase Korea Express Co. from cash-strapped Kumho Asiana Group. Retail giant Lotte Group and foods maker CJ Group are also competing to buy Korea Express.
"We revised to negative from stable the outlook on the long-term corporate credit rating on POSCO," S&P said in a statement, raising the possibility of a cut in POSCO's credit rating.
"Any large acquisition, such as POSCO's bid for Korea Express, could lead us to lower the ratings over the next several months, particularly if the company pays a high premium to outbid competitors," the global credit appraiser warned.
S&P said the latest outlook reduction reflects POSCO's weakened financial health, triggered mainly by its aggressive strategy to pursue growth through geographical and business diversification. POSCO spent 9.4 trillion won (US$8.6 billion) in investments in 2010, including the takeover of Daewoo International Corp.
It noted the steel firm's continued large investments and weaker-than-expected operating performance would eliminate any cushion in the company's financial profile to maintain the current ratings.
S&P, however, may switch POSCO's credit outlook back to stable, but only if the steel giant withdraws its massive investment plans or pushes up profitability, it said.
"A significant reduction in POSCO's investment plans or stronger-than-expected operating performance would (meanwhile) be triggers to revise the outlook back to stable," it added
But S&P maintained its current "A" credit and debt ratings on the steel giant, adding it "may lower the ratings if POSCO's debt-to-EBITDA ratio stays over the two point level over the next 12 months."
EBITDA refers to earnings before interest, taxes, depreciation and amortization, and POSCO's debt-to-EBITDA rate has risen from 1.1 to 2.3 over the past three years, it said.
pbr@yna.co.kr