Korea Ratings Revises Outlook to Negative on April 24 After Earnings Collapse Excluding LG Energy Solution
LG Chem's factorry. (Photo courtesy of LG Chem)
Korea Ratings said on April 24 that it was revising the outlook on LG Chem’s unsecured corporate bonds to “negative” from “stable.” The agency said pressure on the company’s credit profile stemmed from weakened profit-generating ability in its core business divisions, a heavy borrowing burden caused by large-scale investment, and a bleak mid- to short-term earnings outlook.
As a result, all three domestic credit rating agencies such as Korea Investors Service, Korea Ratings, and NICE Investors Service now assess LG Chem’s rating outlook as “negative.” A negative outlook means there is a high possibility of a credit rating downgrade within the medium term.
Korea Ratings cited three main factors behind the outlook revision: weakened earnings capacity in key business units such as petrochemicals and secondary batteries; rising borrowings and weaker financial stability due to continued large-scale investment; and continued weak mid- to short-term profitability and a financial burden that remains high relative to the current rating level.
Kim Ho-seop, a researcher at Korea Ratings, said, “Owing to the downturn in business conditions in core businesses such as petrochemicals and secondary batteries, consolidated operating profit fell sharply from 5.0264 trillion won ($3.39 billion) in 2021 to 1.1809 trillion won in 2025,” adding, “In particular, in the fourth quarter of 2025, all major divisions including petrochemicals, batteries (LG Energy Solution), and advanced materials posted quarterly operating losses, and on an annual basis as well, excluding LG Energy Solution, the company recorded its first-ever operating loss, showing that the earnings-defensive power based on its diversified business portfolio has weakened compared with the past.”
LG Chem’s financial stability indicators have in fact deteriorated markedly as large-scale investment continued while its profit-generating capacity weakened. Large funding needs, which include capacity expansion in the battery and advanced materials divisions, ordinary investment in the petrochemical division, and mergers and acquisitions in the life sciences division, kept the company in a deficit funding position. As a result, consolidated net borrowings, which stood at around 11 trillion won at the end of 2021, more than doubled to 22.5879 trillion won at the end of 2025.
Kim said, “As profit-generating capacity shrank, the ‘net borrowings/EBITDA’ indicator surged to 3.4 times, and with increased borrowings and weakened operating cash generation, the company recognized approximately 2 trillion won in impairment losses on tangible and intangible assets,” adding, “Accordingly, as of the end of 2025, the consolidated debt ratio stood at 114.5% and borrowing dependence at 33.5%, indicating an overall deterioration in financial stability indicators.”
Korea Ratings said weak profitability in major business divisions and a high financial burden relative to the rating level were likely to persist in the mid to short term. The petrochemical division is facing difficulties due to the burden of global capacity expansion and expanding risks in feedstock procurement from the Middle East, while business restructuring has also been delayed. In the battery division as well, a retreat in eco-friendly policies in key markets such as North America and slowing electric vehicle demand are expected to constrain earnings improvement, and this is also having a negative knock-on effect on the profitability of the parent company’s advanced materials division.
Kim said, “Consolidated net borrowings are expected to decline by the end of 2026 through the start of LG Energy Solution stake sales and the sale of tangible assets held by the Honda joint venture, but it should be taken into account that the stake sale will proceed in stages through 2030,” and added, “Even if the scale of investment is reduced, annual capital expenditures are expected to exceed cash generated from operations, so the high financial burden relative to the rating level is estimated to continue for the time being.”
Jung Min-hee
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