Hanwha Chemical has accumulated a record amount of cash on back of its improving business performance. As a result, the company has seen its credit rating continue rise as it repays debts.
Korea Ratings on Sept. 11 revised the outlook for Hanwha Chemical’s credit rating to “positive” from “stable” and affirmed the ratings at A+. NICE Investor Service’s outlook for the company was “positive” last May. The market consensus said Hanwha Chemical is forecast to be affirmed at a range of “AA” between AA and AA+. If realized, it will be the first time Hanwha Chemical will be given a rating of AA since its establishment in 1974.
The improvement of Hanwha Chemical’s credit rating is owed to a growing amount of cash on its books. The company’s cash-related assets surged to 1.224 trillion won for the second quarter of the year, the largest-ever since its establishment.
The figure represents a 62.7 percent jump over 2014 when Hanwha Chemical began to improve its business performance. At that time, the company owned 752.8 trillion won in cash-related assets.
The repaying of loans with cash has reduced the company’s financial burden. The company saw the ratio of earnings before tax, depreciation and amortization (EBITA) vs. net borrowings decline 2.6 fold.
Ryu Joon-wi, a researcher with Korea Ratings, said despite a faltering polyethylene business, Hanwha Chemical has improved profitability thanks to the stable supply of raw materials and better performances of other chemical products, and the company is expected to maintain the current levels of financial soundness.
The improving profitability of such major petrochemical products as polyvinyl chloride (PVC) and caustic soda (CA) since crude oil prices plunged in late 2014 is greatly contributing to the company’s improving business performance. Hanwha Chemical’s petrochemical business, which posted 16 billion won in operating profit losses in 2014, turned a 166.6 billion won operating profit in 2015 and chalked up 471 billion won in 2016. The business maintained its momentum, with 328.5 billion won in operating profit in the first half of this year.
The photovoltaic power business, which had been grappling with losses, began chalking up profits in 2014, contributing to the company’s improving business results. “The petrochemical industry is in a virtuous cycle in which the improving of business performances leads to an increase in profits and the repaying of loans with cash,” a Hanwha Chemical official said.
Hanwha Chemical has already met the preconditions for the of upgrading its corporate rating as suggested by Korean credit rating companies. The company has seen future cash flow stand at 19.3 percent, surpassing the guideline of 10 percent.
Demand forecasting showed that competition for issuing 50 billion won worth of debenture units stands at 13.1:1, the highest-ever since the system was introduced, IB sources said. According to the demand forecasting, the issuance of the debenture is predicted to attract 665 billion won. Hanwha Chemcial’s competition rate of 13.1:1 has renewed a previous record high of 12.7.1:1 set last January.