Hong Kong, April 22, 2014 -- Moody's Investors Service has assigned an A1 rating to the proposed senior
unsecured USD notes to be issued by Korea Expressway Corporation (KEC,
A1 stable).
The rating outlook is stable.
The notes will be issued under the company's existing $3.5
billion global medium-term notes program ((P)A1), which was
updated on 18 April 2014.
The company plans to use the proceeds for general corporate purposes,
including refinancing.
RATINGS RATIONALE
"The rating reflects the high likelihood of timely, extraordinary
support from the Korean government to KEC, because of its important
policy roles, and the high reputational and contagion risks that
may arise if it defaults," says Mic Kang, a Moody's Vice President
and Senior Analyst.
The primary driver for KEC's rating is the expected support from the Government
of Korea (Aa3 stable), under Moody's joint default analysis approach
for government related issuers (GRIs).
Support is highly likely because of the company's important mandated policy
role to construct, manage and operate expressways in Korea.
It is also closely tied with the government, as it is effectively
fully owned and tightly supervised by the government.
Moody's assumption of government support is further underpinned by the
government's strong ability to provide support to KEC and other major
GRIs, given the sovereign's ample financial reserves, and
as reflected by Korea's Aa3 rating and stable outlook.
The expected strong government support resulted in an A1 rating,
despite the company's baseline credit assessment (BCA) of baa2.
"The one-notch rating differential between KEC and the government
mainly reflects the absence of explicit government guarantees of its debt,"
adds Kang.
KEC' baa2 BCA reflects KEC's virtual monopoly of Korea's toll road industry,
the relatively low volatility level of its operations, and its strong
access to the debt and banking markets.
The BCA also factors in the ordinary and ongoing support from the government.
KEC receives significant and regular government subsidies in the form
of capital injections, which accounted for about 55% of its
actual construction costs for new expressways and expansions in 2013.
At the same time, the BCA takes into account the company's weak
financial metrics due to its large and ongoing capex requirements as well
as insufficient returns, given that expressway investments have
long recovery cycles.
Moody's expects KEC's financial metrics to remain weak over the medium
term, as its large capex requirements are likely to lead to continued
incremental debt funding. In 2013, its FFO/interest expense
was at 1.9x and its FFO/debt was at 4.1%.
The stable outlook reflects Moody's expectation that in the medium term
KEC will continue to play a strategic and policy role, and that
the government's support will remain strong.
An upgrade of Korea's sovereign rating will likely trigger a review of
KEC's rating. But, in the absence of a sovereign rating upgrade,
upward pressure remains very low, without stronger forms of legal
support, such as explicit guarantees from the government.
A downgrade of Korea's sovereign rating will likely trigger a review of
KECs' rating. In addition, the rating could be downgraded
if there are significant adverse changes in its relationship with the
government and its policy roles.
The methodologies used in this rating were Operational Toll Roads published
in December 2006 and Government-Related Issuers: Methodology
Update Industry Methodology published in July 2010. Please see
the Credit Policy page on www.moodys.com for a copy of these
methodologies.
As a 99.98% government-owned company, Korea
Expressway Corporation is mandated with the responsibility to construct,
manage and operate Korea's network of expressways.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides certain regulatory disclosures in relation
to the rating action on the support provider and in relation to each particular
rating action for securities that derive their credit ratings from the
support provider's credit rating. For provisional ratings,
this announcement provides certain regulatory disclosures in relation
to the provisional rating assigned, and in relation to a definitive
rating that may be assigned subsequent to the final issuance of the debt,
in each case where the transaction structure and terms have not changed
prior to the assignment of the definitive rating in a manner that would
have affected the rating. For further information please see the
ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this rating action, and
whose ratings may change as a result of this rating action, the
associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
The first name below is the lead rating analyst for this Credit Rating
and the last name below is the person primarily responsible for approving
this Credit Rating.
Mic Kang
Vice President - Senior Analyst
Project & Infrastructure Finance
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077
Patrick Mispagel
Associate Managing Director
Project & Infrastructure Finance
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077
Releasing Office:
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077
Moody's assigns A1 rating to Korea Expressway's MTN drawdown
