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Moody's revises LG Chem outlook to negative on rising leverage

Moody's on Aug. 2 revised the outlook on LG Chem Ltd. to negative from stable on expectations that the South Korean company's financial leverage will increase significantly in 2019 and remain elevated until at least 2020.

LG Chem's debt is projected to rise to between 8.0 trillion won and 8.5 trillion won by 2019-end and between 10.0 trillion won and 10.5 trillion won a year later, from 5.3 trillion won at the end of 2018. The debt hike will fund its investments in electric vehicle batteries and a new naphtha cracking center, as well as working capital deficits related to its battery business.

This is expected to raise adjusted debt/EBITDA to 2.3x to 2.5x over 2019-2020 from 1.5x in 2018, Moody's said.

Adjusted EBITDA is projected to drop by about 10% in 2019 due to lower petrochemical spreads and the one-off losses in the battery business. Adjusted EBITDA is expected to grow 35% year over year in 2020.

Moody's expects revenue from its battery business to more than double by 2020 from 6.5 trillion won in 2018.

As of Aug. 2, US$1 was equivalent to 1,203.98 South Korean won.