Moody's Investors Service said Monday that it has downgraded POSCO's foreign currency bond rating by one notch to "Baa2," citing the leading South Korean steelmaker's high level of debt and industry uncertainties.

In a statement, Moody's said it has cut POSCO's foreign currency bond rating to "Baa2" from "Baa1." Moody's has also downgraded the steelmaker's senior unsecured shelf rating to "Baa2" from "Baa1." The rating outlook is stable, the rating agency said.

"POSCO's high level of debt, the challenging fundamentals it faces in the steel industry and the significant uncertainties about its ability to implement significant deleveraging measures are key factors behind the rating downgrade," Moody's said in the statement.

"The rating action also reflects our expectation that, despite a gradual improvement, POSCO's financial leverage will remain elevated and weak for the Baa1 rating level over the next one to two years," the rating agency said.

Given the persistent weakness in the regional steel industry -- a situation that will hinder any recovery in POSCO's core steel margins -- the improvement in the company's profitability should remain modest in the next two years, despite Moody's expectation that POSCO will achieve a robust growth in earnings from its nonsteel businesses and should benefit from its large expansion in steel capacity.

Moreover, the company's moderate profitability and its sizable investments of over 5 trillion won ($4.7 billion) annually will constrain its ability to generate positive free cash flow and to reduce its financial leverage, it said.

"Despite the challenges facing the company, the rating acknowledges POSCO's dominant position in Korea's steel sector, its diversified product mix, and globally competitive cost position," Moody's said. (Yonhap News)