LG Electronics credit upgrade opens door to cheaper foreign-currency funding

LG Electronics has received an improved credit rating from S&P Global Ratings, moving up one notch from BBB to BBB+. The upgrade reflects growing confidence in the company's core home appliance business as well as expectations that subsidiary LG Display will return to stronger profitability.

The higher rating is expected to sharpen LG Electronics' competitive edge in global funding markets. The company returned to the public foreign-currency bond market two years ago for the first time in 12 years, raising $800 million. It is now expected to begin seriously evaluating its foreign-currency funding options for next year in the second half of this year.

S&P Global Ratings recently upgraded LG Electronics' credit profile to BBB+/Stable, industry sources said Friday. The company had previously held a BBB/Positive rating and outlook, and the upgrade reflects the sustained improvement in its earnings.

S&P said it expects LG Electronics to deliver solid operating results over the next two years, citing "a strong premium product lineup in the Home Solution business division, diversified subscription services, and rising penetration in the high-margin B2B segment" as key drivers of earnings growth.

The rating agency also highlighted the potential for a rebound in the TV business, which posted a loss last year. S&P projected growth and a return to profit over the next one to two years, driven by expanded sales of premium products such as large-screen OLED televisions.

"Major sporting events this year, including the World Cup and the Winter Olympics, will boost operating results," S&P said, adding that a restructuring program the company carried out in the second half of last year is expected to deliver cost savings.

The vehicle components business, a key growth engine, also drew positive attention. LG Electronics has established itself as a leader in telematics and infotainment, backed by its differentiated product technology.

S&P added that an order backlog of 90 trillion to 100 trillion won (approximately $65.4 billion) "provides the Vehicle Solutions division with predictable revenue growth and earnings generation," and that expanding utilization rates at production facilities as the business grows "will support margin improvement through economies of scale."

S&P also cited a turnaround at subsidiary LG Display as a positive factor for LG Electronics' own credit standing. The display maker is expected to improve its financial position by increasing sales of high-value-added OLED panels.

"The stable outlook on LG Electronics reflects our assumption that LG Display's EBITDA improvement will be sustained and will not materially deteriorate," S&P said. It projected LG Display's EBITDA would rise from 4.3 trillion won last year to between 4.5 trillion and 4.6 trillion won in 2026 and 2027.

Investment banking sources say the upgrade has strengthened LG Electronics' position as a foreign-currency bond issuer. The company returned to the public foreign-currency bond market in April 2024 for the first time in 12 years, issuing $800 million in dollar-denominated bonds — its first dollar bond issuance since 2007, a gap of 17 years.

The offering was split into three-year and five-year tranches and drew total orders exceeding $7 billion. Strong demand allowed the company to set final issuance sizes of $500 million for the three-year tranche and $300 million for the five-year.

Despite the successful return, LG Electronics skipped the foreign-currency bond market last year. The company raised nearly 2 trillion won in foreign currency through an initial public offering of its India subsidiary, eliminating the immediate need for overseas market funding.

This year, however, the company has resumed efforts to secure local-currency funding for its overseas operations. In March, it became the first major Korean conglomerate to issue yuan-denominated kimchi bonds — foreign-currency bonds issued domestically — signaling a broader push to diversify its funding channels.

The credit upgrade has also made funding conditions more favorable. With its rating now higher than at the time of the 2024 issuance, the upgrade is expected to work in LG Electronics' favor as it looks to refinance the three-year dollar bonds maturing next year.

"LG Electronics looks set to begin a full review of potential issuance from the second half of the year," an investment banking source said. "That said, the final decision will take into account a range of factors, including exchange rates and US Treasury yields."

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