(Bloomberg) -- SK Innovation Co.’s credit rating was cut to junk by S&P as a slowdown in demand for electric vehicle batteries and high capital expenditures are set to negatively impact its debt metrics.  

S&P Global Ratings lowered its valuation of the South Korean battery maker and oil refiner’s to BB+, one level into non-investment grade territory, according to a statement on Tuesday.

The company’s debt-to-earnings ratio will likely stay higher for longer than previous forecast while electric-vehicle battery revenue and margins will remain weak for a period of up to two years, S&P said. Leverage had risen to 5.7 times in 2023, up from 3.3 times a year earlier, and S&P expects it will drop to 5.2 times in 2024. 

“We expect limited improvement in underlying profitability in 2024, driven by a slowdown in demand for EV batteries since the second half of 2023 and lower metal prices,” S&P analysts Jeremy Kim and Taehee Kim said.

SK Innovation said in a text message to Bloomberg News that the nature of the battery business involves large-scale investments in early stages and the financial burden can be viewed as temporary. Profitability in the battery business is expected to improve from the second half and capex is going to decrease significantly from this year when major expansion of new battery capacity is completed, the firm said.

The company has lost a fifth of its market value in the past year compared to an 11% gain in the benchmark Korean stock market index.

(Updates with expected leverage level in third paragraph. An earlier version corrected the new rating level.)

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