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Even as South Korea's stock market swung from record highs to sharp selloffs and back again this year, the underlying financial health of domestic companies has improved markedly. The share of corporate bond issuers rated AA or above has risen 2.9 percentage points in just eight months — already exceeding the full-year gains of each of the past two years. Analysts attribute the upgrade trend to stronger earnings and improved balance sheets across key manufacturing sectors, including semiconductors, power equipment, defense and shipbuilding.
According to Korea Ratings, 273 of the 453 companies with domestic corporate bond ratings held an AA or higher rating (AAA through AA-) as of Wednesday, accounting for 60.3 percent of the total. At the start of this year, 264 of 460 rated companies — 57.4 percent — held AA-or-above ratings. Nine more companies have since crossed the AA threshold, and the proportion has risen 2.9 percentage points.
What stands out is the pace of improvement. The share of AA-or-above issuers climbed gradually from 54.8 percent (251 companies) at the start of 2024, to 56.3 percent (260 companies) at the start of 2025, to 57.4 percent (264 companies) at the start of this year. The annual gains were 1.5 percentage points in 2024 and 1.1 percentage points last year. This year, the share has already jumped 2.9 percentage points to 60.3 percent (273 companies) in just eight months, outpacing both of those full-year moves.
The overall rating distribution has also shifted toward higher grades. The share of investment-grade issuers (AAA through BBB-) rose from 93.7 percent (429 companies) at the start of 2024 to 95.5 percent at the start of 2025, 97.0 percent at the start of this year, and 97.6 percent (442 companies) as of Wednesday. Conversely, the share of speculative-grade issuers (BB+ through D) fell over the same period from 6.3 percent (29 companies) to 4.5 percent, 3.0 percent and 2.4 percent (11 companies).
Credit ratings measure a company's ability to service its debt and rise only when earnings, cash generation and financial structure genuinely improve — unlike share prices, which can move sharply in the short term on supply-and-demand dynamics. The steep climb in the proportion of top-rated issuers this year therefore signals that improvements in corporate earnings and balance sheets have translated into real gains in creditworthiness.
In practice, upgrades far outnumbered downgrades in the first half of this year. Korea Ratings' analysis of corporate bond rating changes in the first half of 2026 showed 17 upgrades against just seven downgrades — more than double. In the first half of last year, the picture was reversed, with 10 upgrades and 18 downgrades. The upgrade-to-downgrade ratio jumped from 0.56 to 2.43. After a prolonged stretch of downgrade dominance since 2018, the first half of this year marked a clear shift to upgrade dominance.
Rating upgrades were particularly concentrated in semiconductors, power equipment, defense and shipbuilding. The number of manufacturing companies upgraded rose from five in the first half of last year to seven this year, while the number downgraded plunged from 12 to four. SK hynix, HD Hyundai Electric, HD Hyundai Heavy, Hyundai Rotem and Poongsan were among the companies upgraded. Korea Ratings cited favorable industry conditions driving earnings and balance-sheet improvements in those sectors as the main reason for the shift to upgrade dominance.
While corporate creditworthiness improved broadly, the stock market told a more mixed story. From the start of this year through Wednesday, SK hynix's share price surged 159.29 percent, and Cosmax and S-Oil rose 76.69 percent and 69.88 percent, respectively. Hyundai Rotem and Poongsan, however, fell 27.41 percent and 22.63 percent, respectively. The Kospi also showed sharp volatility over the period, hitting an all-time high in June before plunging in late July.
A credit rating upgrade does not necessarily translate into an immediate share price gain. Credit assessments focus on a company's ability to repay debt and its financial stability, while share prices reflect a more complex mix of future growth prospects, valuation, investor flows, interest rates and exchange rates. As markets swung sharply in both directions, corporate earnings and balance sheets kept improving — creating a divergence between share prices and credit quality.
The ratings outlook — a forward indicator of potential rating changes — also skewed positive. Korea Ratings reported 15 positive outlooks at the end of the first half of this year, against 10 negative outlooks. However, not all sectors are improving together. While semiconductors, power equipment, defense and shipbuilding benefit from favorable conditions, construction and petrochemicals continue to face headwinds, and sector-by-sector divergence in creditworthiness is expected to persist in the second half.
Market analysts also expect the broad improvement in South Korea's credit market to be accompanied by growing polarization across sectors and rating tiers. The funding-cost burden from a prolonged high-rate environment is seen as likely to fall disproportionately on lower-rated companies with weaker fundamentals. "In the second half, downgrade pressure is expected to intensify, particularly among lower-rated and speculative-grade issuers rated BB+ and below," said Cha Ju-hee, an analyst at Shinhan Investment. "Top-rated companies are holding up well even in the high-rate environment, but credit risk among speculative-grade issuers is likely to become concentrated in a handful of companies."
hajun825@heraldcorp.com
