Korea Ratings and NICE Investors Service said on July 31 that their "AA+" rating given to Hyundai Heavy Industries will be under review. It is likely the world's No. 1 shipbuilder is in danger of losing its "AA+" rating after six years. Usually the probability of a corporate credit rating under review to be downgraded within three months is more than 50 percent.

 

A Korea Ratings official explained that his company's decision was based on the recent announcement that Hyundai Heavy took a large operating loss in the second quarter due to the long-term downturn in the shipping industry, the major buyer of ships.

 

Earlier on July 29, the company had released its second-quarter consolidated financial results of which the operating loss was 1,103.7 billion won. This is mainly due to the delay in a number of projects in shipbuilding and offshore plants. The company took a huge amount of allowance for bad debts in anticipation of future cost overruns.

 

The financial standing of Hyundai Heavy Industries is getting worse since the 2011 European fiscal crisis. Its consolidated operating profit that reached as high as 5,531.7 billion won in 2010 fell to 801.9 billion won last year. At the same time, its debt balance bloated to 15,843.2 billion won from 9,844.4 billion won during the same period. If Hyundai Heavy gets a rating downgrade, its rating will be same as that of Samsung Heavy Industry, the No. 2 player.