Moody's downgrades POSCO's rating

HONG KONG, June 30 (Yonhap) -- Moody's Investors Service said Thursday that it downgraded POSCO's foreign currency bond rating one notch, citing the company's weakening financial status.
The rating on South Korea's leading steelmaker was lowered to "A3," the seventh-highest rating on the 21-tier rating scale, while the outlook is stable.
"The rating action primarily reflects a weakening in POSCO's financial profile given its ambitious investment strategy for the steel and non-steel businesses," said Chris Park, vice president and senior analyst at Moody's.
The downgrade follows POSCO's recent announcement that it signed a deal with Mechel OAO of Russia to cooperate in natural resource development and industrial infrastructure building in Russia.
Moody's said POSCO's medium-term investment plans call for about 10 trillion won (US$9.4 billion) in capital expenditure and equity investments annually, which would require persistent increases in debt to fund negative free cash flow.
The credit rating appraiser said high raw material prices and persistent overcapacity in China will further drag down the company's earnings.
"Such pressure will only be partly mitigated by a rise in sales volume and growing earning contributions from its non-steel businesses," Park said.
POSCO said earlier that its first-quarter earnings sank 33 percent from a year earlier due to increased costs of raw materials, such as iron ore, and freezes in steel prices.
Net profit reached 927 billion won in the January-March period, compared with a profit of 1.37 trillion won a year earlier, while sales surged 31 percent to 9.11 trillion won over the cited period.
The steelmaker said it is targeting 34.7 million tons in sales of steel products this year, up 10 percent from last year.