Multiple Korean companies controlled by private equity funds saw credit rating downgrades on May 29 and May 30, following the Homeplus bankruptcy crisis that intensified corporate bond market concerns. Korea Ratings downgraded SK D&D from BBB to BBB- and SK Shieldus from A to A-, citing reduced expectations of group support after ownership transferred to private equity and increased debt burdens. The downgrades reflect credit agencies' assessment that companies under private equity control face heightened financial risk during crises, as they cannot rely on conglomerate-level support structures that traditional chaebol affiliates access.
Korea Ratings Downgrades SK D&D Following Private Equity Acquisition
Korea Ratings lowered SK D&D's long-term credit rating from BBB (under review for downgrade) to BBB- (negative outlook) on May 30, according to securities and credit rating industry sources. The agency also downgraded the company's short-term rating from A3 (under review for downgrade) to A3-. Korea Ratings stated that SK D&D's effective controlling shareholder changed from SK Group to private equity fund HN&Company, making it difficult to expect group support in emergencies. The rating action also reflected increased borrowing burdens due to delayed working capital recovery and equity investments. HN&Company became SK D&D's largest shareholder in October last year by acquiring a 31.27% stake from SK Discovery for approximately 74.2 billion won (12,750 won per share). The private equity firm raised its stake to approximately 78.7% through two tender offers aimed at voluntary delisting of SK D&D.
SK Shieldus Rating Cut to A- Amid Debt Burden Concerns
Korea Ratings downgraded SK Shieldus from A (negative outlook) to A- (stable outlook) on May 29. The agency determined that business foundation strengthening effects following the change in largest shareholder fell short of expectations and borrowing burdens became excessive. SK Shieldus came under control of Swedish private equity firm EQT Partners in 2023, when EQT purchased stakes held by SK Square and a Macquarie consortium for approximately 2 trillion won. SK Shieldus took on a debt burden of approximately 2.4 trillion won during the acquisition financing refinancing process last year.
Lotte Aluminium, Ajin Industrial, Com2uS Holdings Face Downgrades
Among companies without ownership structure change issues, Lotte Aluminium, Ajin Industrial, and Com2uS Holdings were downgraded last week. These companies saw ratings lowered in the final phase of credit rating agencies' regular assessment period. Korea Ratings lowered Lotte Aluminium's short-term credit rating from A2 to A2-, reflecting cost burdens, industry slowdown, and poor performance. The agency downgraded Ajin Industrial from BB (negative outlook) to BB- (stable outlook), citing increased financial burdens from domestic and overseas facility investments. NICE Credit Rating downgraded Com2uS Holdings' short-term credit rating from A3 to A3- on the same day, citing continued poor sales of flagship games and operating losses.
Homeplus Enters Bankruptcy as JR Global REIT and Joongang Group Default
Defaults occurred at JR Global REIT and Joongang Group this year following Homeplus last year, raising concerns about debt repayment capacity centered on lower-rated companies. Homeplus moved toward bankruptcy proceedings after Seoul Bankruptcy Court ordered liquidation by its own authority on the 3rd. JR Global REIT and Joongang Group entered default procedures after consecutively failing to refinance short-term funds.
NH Investment & Securities Forecasts 25bp Rate Hike This Month
Downgraded companies are expected to face dual pressure from rising interest burdens following an anticipated base rate increase this month. NH Investment & Securities stated: "We forecast a 25bp (1bp = 0.01 percentage point) base rate increase at this month's Monetary Policy Committee meeting and maintain our forecast for an additional 25bp increase in October after July."
FAQ
Why did Korea Ratings downgrade SK D&D's credit rating on May 30?
Korea Ratings downgraded SK D&D from BBB to BBB- because the company's controlling shareholder changed from SK Group to private equity fund HN&Company, making it difficult to expect group support in emergencies. The downgrade also reflected increased borrowing burdens from delayed working capital recovery and equity investments.
What debt burden did SK Shieldus take on after EQT Partners acquired control?
SK Shieldus took on a debt burden of approximately 2.4 trillion won during the acquisition financing refinancing process last year, after Swedish private equity firm EQT Partners became the largest shareholder by purchasing stakes for approximately 2 trillion won in 2023.
What base rate increase does NH Investment & Securities forecast for this month?
NH Investment & Securities forecasts a 25bp (0.25 percentage point) base rate increase at this month's Monetary Policy Committee meeting, with an additional 25bp increase expected in October after July.
