S&P to review POSCO E&C for possible downgrade over acquisition

By Kim Young-gyo
HONG KONG (Yonhap) - Standard & Poor's Rating Service (S&P) said Tuesday it has placed the credit rating of POSCO Engineering & Construction Co., the construction unit of South Korean steel giant POSCO, on review for a possible downgrade, citing its acquisition of a development project.
The move follows the company's announcement that it assumed and paid 364 billion won (US$336 million) in project finance debt that the property developer, Jungwoo Construction Co., owed and which had been secured by the residential property development project.
"POSCO E&C funded the acquisition mostly with internal cash flow, which, in our opinion, has reduced the cushion the company needs to maintain its current rating," S&P said.
"Weak cash flow, due to low profitability, and a heavy burden of working capital are exerting pressure on POSCO E&C's financial profile."
POSCO E&C currently has a "BBB+" rating, the eighth highest on S&P's 22-grade rating scale.
The company said earlier this year that it is targeting orders worth 14.1 trillion won this year, compared to 11.37 trillion won worth of orders won last year.
It also aims to post 6.8 trillion won in sales and 543 billion won in operating income this year.
In 2010, the firm logged operating income of 276 billion won on sales of 6.24 trillion won.