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S&P downgrades LG Chem on rising leverage from battery project

S&P Global Ratings downgraded LG Chem Ltd.'s issuer credit rating to BBB+ from A- over its aggressive financial policies amid a weak petrochemical market.

The rating agency expects LG Chem's capital expenditure in 2019 and 2020 to exceed operating cash flow as the company aims to increase its battery capacity to about 100 GW by the end of 2020 from 35 GW as of the end of 2018.

LG Chem's capital expenditure is projected to be 5.5 trillion South Korean won in 2019 and 4.5 trillion won in 2020, while annual operating cash flow is expected to be 1.7 trillion won during 2019 and 3 trillion won during 2020.

Meanwhile, slowing demand and significant expansion of peers in the petrochemical market are likely to weigh on LG Chem's petrochemical spreads, but the company is projected to weather a likely down cycle due to its "solid market position," S&P Global Ratings wrote.

The energy business is expected to drive LG Chem's earnings growth, while growing exposure to electric vehicle batteries will help the company diversify and offset weakness in the petrochemical business. S&P Global Ratings expects LG Chem to record 11% three-year compounded annual growth in EBITDA.

S&P Global Ratings also downgraded the long-term issue rating on LG Chem's outstanding debt to BBB+ from A-. The outlook is stable as the rating agency expects LG Chem to maintain its debt-to-EBITDA ratio at 2.0x to 2.5x over the next 12 to 24 months.

As of Dec. 11, US$1 was equivalent to 1,192.58 South Korean won.

This S&P Global Market Intelligence news article may contain information about credit ratings issued by S&P Global Ratings. Descriptions in this news article were not prepared by S&P Global Ratings.