The market views this downgrade of the credit rating outlook as an “expected development.” Previously, credit rating agencies had raised CJ CGV’s rating outlook to “Positive” in 2024, reflecting the impact of CJ Olive Networks’ consolidation into the group’s financial statements and the possibility of support from group affiliates.
Even at that time, there were quite a few voices in some quarters of the market cautioning against overly optimistic forecasts. Critics pointed out that it was somewhat premature to raise the rating outlook based solely on the effects of the subsidiary’s consolidation, given that CJ CGV’s fundamental financial health—including its key financial indicators—had not yet fully recovered and remained at a non-investment-grade level. Consequently, as concerns raised at the time—such as the delayed recovery of demand in its core business, downside risks to earnings, and the burden of debt accumulated during the pandemic—have materialized, the rating outlook has returned to its original level after two years.
In fact, CJ CGV’s domestic theater business continues to struggle to restore its core profitability. Last year, the number of domestic movie theater attendees fell to 106.09 million, a 13.8% decrease from the previous year. This figure is less than half of the level seen in 2019, before the pandemic. Despite an increase in attendance during the first quarter of this year driven by the success of certain highly anticipated films, the company posted an operating loss of 6.6 billion won on a standalone basis.
Kwon Jin-hyuk, a senior researcher at Naisinpyeong, stated, “Although the company has continued efforts to restructure its revenue model—such as reducing fixed costs—since the pandemic, it is facing limitations in achieving tangible improvements in profitability due to a structural decline in audience demand and a lack of blockbuster hits.” He added, “As the recovery of the industry as a whole has stalled, it will be structurally difficult to return to pre-pandemic performance levels for the time being.”
Despite strong performance in IT services and overseas subsidiaries, the company’s overall financial burden remains excessive. Although CJ Olive Networks—which was acquired in June 2024—and overseas operations are performing well, the actual debt burden shows little sign of easing due to high financing costs, the burden of distributions on hybrid capital securities, and the accumulation of net losses, all against a backdrop of weakened operating cash flow generation.
Chae Seon-young, a senior analyst at Hanshin Rating, stated, “While the IT services and overseas theater segments are generating solid profits, the slump in the domestic theater business is offsetting these gains and limiting the company’s ability to service its debt using internally generated cash flow.” “In particular, when comprehensively considering factors such as the scale of hybrid securities—including hybrid capital securities—and the likelihood of fulfilling the capital replenishment commitments made to CGI Holdings’ financial investors (FIs), the actual financial burden is far heavier than what the accounting indicators suggest,” she analyzed.
However, comprehensive support from its parent company, CJ Corp., serves as a key pillar underpinning its creditworthiness. CJ Corp. has continued to bolster capital through large-scale rights offerings and hybrid capital loans in the past, as well as by providing capital replenishment commitments for the hybrid capital securities issued in April and May of this year, each worth 3000억원. Reflecting CJ Corp.’s strong capacity and willingness to provide support, both agencies have assigned CJ CGV a rating that is one notch higher than its standalone credit rating.
Meanwhile, the 35th and 40th bond-type hybrid capital securities were assigned a “BBB+” rating—one notch lower than the senior unsecured bonds (A-)—reflecting their long maturity (30 years), their capital-like characteristics (which allow for maturity extensions and interest payment deferrals under the same conditions), and the explicit inclusion of subordinated clauses.
In this regard, a CJ CGV official stated, “It was time to review an adjustment to the rating outlook, as two years have passed since we were assigned a stable outlook. Although the outlook was adjusted to ‘stable’ this time due to factors such as the delayed recovery of the domestic film market in 2025, we will strive to achieve another credit rating upgrade this year through a clear market recovery and the stabilization of our financial structure.”
