Moody’s downgrades LG Chem and LG Energy Solution to Baa2

Investing.com -- Moody’s Ratings has downgraded LG Chem, Ltd. and LG Energy Solution, Ltd. (LGES) from Baa1 to Baa2, while changing their outlooks from negative to stable, the agency announced Friday.

The credit rating agency cited expectations that LG Chem’s consolidated leverage, including LGES, will remain elevated over the next 12-18 months due to weak earnings across key business segments and rising debt levels.

"The stable outlooks incorporate both companies’ capacity to limit further financial weakening, supported by LGES’ expansion in energy storage service and LG Chem’s asset sales," said Sean Hwang, Moody’s VP and Senior Analyst.

LG Chem’s credit quality is closely linked to LGES, which contributes a dominant share of LG Chem’s consolidated earnings and is 79.4% owned by the company.

Moody’s estimates LG Chem’s adjusted net debt/EBITDA will increase to 3.4x-3.7x in 2025-26 from 3.3x in 2024. This rise stems from weak petrochemical and cathode earnings, modest profit growth at LGES, and increasing debt to fund LGES’ North American capacity expansion.

The agency forecasts a 13% increase in adjusted EBITDA for 2026 compared to 2025, as LGES’ shift toward energy storage system batteries is expected to offset declining US electric vehicle battery demand following the recent end of EV subsidies.

Beyond 2026, Moody’s anticipates accelerated EBITDA growth, supported by a rebound in US EV adoption and continued ESS battery expansion, coinciding with reduced capital spending after capacity expansion programs are completed.

The Baa2 ratings also reflect the likelihood of extraordinary support from parent company LG Corp when needed, based on the strategic importance of both companies to the LG group and LG Corp’s financial capacity.

The ratings acknowledge LG Chem’s strong position in Korea’s petrochemical and battery materials industries and LGES’s status as the largest battery producer globally outside China by capacity.

These strengths are balanced against elevated financial leverage from years of debt-funded expansion and weak earnings caused by oversupply in both petrochemical and EV battery markets, along with risks from intense competition and rapid technological changes in the battery industry.

Moody’s indicated it could upgrade LG Chem’s ratings if the company significantly increases earnings and contains debt growth, bringing its adjusted net debt/EBITDA below 2.75x on a sustained basis. Conversely, ratings could be downgraded if financial leverage remains elevated with adjusted net debt/EBITDA exceeding 3.75x-4.0x on a sustained basis.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.