Moody's Investors Service said Thursday it expects the spreading coronavirus outbreak to have a short-term impact on South Korean companies as the virus may be contained in the coming months.
The rapid spread of COVID-19 in South Korea and its countrywide efforts to contain the infection are credit negative for local companies in many sectors over the short term as it will increase disruptions of Korea-based production lines and further weaken domestic demand for months to come, Moody's said in a statement.
Carmakers like Hyundai Motor Co., chipmakers like Samsung Electronics Co. and retailers, such as Emart Inc. and Lotte Shopping Co., are widely expected to post a significant decline in first-quarter earnings due to disruptions of auto parts from China and decreased sales amid growing fears over the virus.
"However, we expect the disruptions caused by the spread of the coronavirus to have only a temporary adverse impact on rated (Korean) companies' credit metrics, provided that the outbreak will be contained around the end of the first quarter, allowing for the resumption of mostly normal economic activity in the second quarter," the statement said.
Most Korean companies have strong fundamentals and the Seoul government has ample fiscal room to buffer the economic shock from the spreading virus outbreak.
Some Korean manufacturers have already been experiencing problems in their supply chains and a spillover impact from the disruptions caused by the outbreak of the deadly disease that originated in China, it said.
Moody's expects supply disruptions to have a limited impact on its businesses as transportation and logistics linkages are not severely curtailed within the country.
"Some companies in the auto, tech, refining, chemicals and steel sectors are likely to increase production starting in the second quarter to make up the production losses incurred in the first quarter, reducing the impact on their full-year earnings," the ratings agency said. (Yonhap)