Business News

Arrest hurts Samsung's image but credit rating stays intact


The legal woes of Samsung vice chairman Lee Jae-Yong will inflict more damage on the conglomerate's reputation than its financial performance, according to two of the 'Big Three' ratings agencies.

Samsung Group chief, Jay Y. Lee, leaves after attending a court hearing to review a detention warrant request against him at the Seoul Central District Court in Seoul, South Korea, January 18, 2017.
Kim Hong-Ji | Reuters

Lee's arrest poses another risk to Samsung's image following last year's recall and suspension of the Galaxy Note 7, Fitch Ratings and S&P Global warned in separate statements late on Monday.

Lee, heir apparent to the company, was arrested on Friday on charges of perjury, embezzlement and bribery over his alleged role in a corruption scandal involving South Korean President Park Geun-hye. Lee was accused of paying bribes worth nearly $40 million to organisations linked to Park's friend, Choi Soon-sil, in order to gain government approval for a merger of two Samsung units.

His arrest is likely to delay strategic investment and weigh on investor sentiment in the short term, Fitch flagged. The hit to corporate leadership could also cause some delays in key strategic decisions, such as mergers and acquisitions, S&P added, which may undermine the company's competitive position in the longer run.

Still, strong metrics will continue to underpin the tech giant's credit rating, the two agencies noted, echoing similar sentiments from Moody's on Friday.

Samsung's boss questioned over the weekend

Fitch and S&P both hold an 'A+' rating on Samsung, while Moody's maintains an 'A1' grade.

Samsung's business segments are run by their own management teams so Lee's absence won't impact daily operations, all three agencies flagged.

The Korean firm's liquid resources—$75.4 billion as of 2016—are more than sufficient to cover total debt and expected expenditure for 2017, Moody's said. High levels of capital spending will also retain Samsung's title as one of the world's leading tech firms, Fitch pointed out.

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