S&P: Posco on CreditWatch

Standard & Poor's said it placed the BBB+ long-term corporate credit rating on Posco Engineering & Construction Co. Ltd. on CreditWatch with negative implications following its acquisition of a residential development project from a property developer and weaker-than-expected operating performance in the first quarter of fiscal 2011.

Posco assumed and paid KRW 364 billion in project finance debt that the property developer, Jungwoo Construction, owed and which had been secured by the residential property development project.

In return, Posco obtained full title to the land and development rights for the project, S&P said.

To further development of the property in 2009, Posco provided credit enhancement to the developer's project finance debt, the agency said.

Posco funded the acquisition mostly with internal cash flow, which has reduced the cushion the company needs to maintain its current rating, S&P said.

Weak cash flow, due to low profitability, and a heavy burden of working capital are exerting pressure on its financial profile, the agency added.

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