International credit rating agency S&P Global Ratings has announced that it has affirmed South Korea-based steelmaker POSCO’s 'BBB+' long-term corporate credit rating. The outlook is negative.
S&P stated that it affirmed the rating because it expects POSCO's credit quality to improve modestly over the next 12 months owing to the company's stabilizing operating performance, lower capital investment, and ongoing assets disposal. S&P also expects POSCO's operating performance in 2016 and 2017 to be similar to that in 2015, but weaker than in 2013 and 2014 owing to continued global steel oversupply. In addition, the company has started generating positive free cash flow from 2015 and S&P expects the trend to continue in 2016 and 2017, reducing debt levels further.
According to S&P’s statement, for the years 2016 and 2017, POSCO's management is unlikely to significantly increase investments to expand its steel and non-steel businesses because of the oversupply in the steel industry and the restructuring of its non-steel portfolio.
Meanwhile, the negative outlook reflects S&P’s expectation that continued oversupply in the steel industry could undermine POSCO's operating performance over the next one-to-two years.