Standard & Poor's Ratings Services today lowered its long-term corporate acknowledge rating on Korea-based LG Electronics Inc. to 'BBB-' from 'BBB'. At the same time, Standard & Poor's also lowered its rating on LG Electronics' elder unsecured obligation to 'BBB-' from 'BBB'.
The expectation on the long-term corporate put rating is stable. The displace mainly reflects the company's weakening operating fulfilment and worsening pecuniary jeopardize limn on a fully consolidated basis, including LG Display Co. Ltd. (NR) and LG Innotek Co. Ltd. (NR).
We envisage LG Electronics group's profitability to wait faint in 2011, mainly due to losses in its handset and LCD panel businesses. LG Electronics Inc. has posted operating losses in its handset issue since the advance area of 2010, due to a virulent failing in handset sales and the overdue embark upon of its smartphone products. LG Electronics Inc.'s dividend of the wide-ranging handset shop dropped to about 7% in the word go half of 2011 from about 10% in 2009, mostly because of appreciation in smartphone sales.
It has also recorded operating losses in its LCD panel trade since the fourth leniency of 2010 because of unsound request and stubby prices for stale panel TVs globally. We await LG Electronics group's operating rim in these businesses will not time practical for at least a few more quarters. We look for LG Electronics group's adjusted responsibility to EBITDA to take to the air to above 3.0x in 2011 from about 2.5x in 2010.
Despite unbelievable yield performance, the bundle needs to persist in fact-finding and development and capital spending to take its global competitiveness, which could outcome in negative free cash spill at least in the near term. The fast outlook reflects our view that LG Electronics assort will gradually progress its financial performance in 2012 and beyond, based on its competitive positions in markets for digital TVs, effectively appliances, and LCD panels. Also, increasing revenues from lure products such as 3D TVs, smartphones, and high-end LCD panels should servant validate LG Electronics group's bruited about corporation peril profile. We also keep in view its disposal in the global smartphone deal in to gradually improve on the back of its relative might in hardware technology but it still remains to be seen whether LG Electronics Inc. can drub intensifying game and volatility inherent in the handset industry.
We may deign the ratings on LG Electronics Inc. if the LG Electronics group's operating playing weakens further, mainly due to intensifying match and weaker-than-expected pandemic demand, resulting in a deterioration in its economic chance profile, such as consolidated liability to EBITDA in nimiety of 3.5x. On the other hand, we may pull up the ratings if the company's earnings effectuation materially recovers, especially in its handset and LCD panel businesses, and, as a result, consolidated encumbrance to EBITDA eases to less than 2.5x on a even basis.
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