NOTE: On November 16, 2018, the press release was corrected as follows: Vivian Tsang was added as the third contact at the end of the press release. Revised release follows.
Hong Kong, October 15, 2018 -- Moody's Investors Service has assigned an Aa2 rating to the proposed senior
unsecured US dollar notes to be issued by Korea Expressway Corporation
(KEC, Aa2 stable).
The rating outlook is stable.
The notes will be issued under KEC's existing USD3.5 billion global
medium-term note (MTN) program, which is rated (P)Aa2.
The company plans to use the proceeds for general corporate purposes,
including refinancing and capital expenditure.
RATINGS RATIONALE
"The Aa2 rating is primarily driven by Moody's assessment of a very high
likelihood of support from the Korean government for KEC, if and
when needed, given the company's important policy roles in the country's
toll road sector and the high reputational and contagion risks that may
arise if it were to default," says Mic Kang, a Moody's Vice
President and Senior Credit Officer.
Moody's believes that KEC will remain strategically important and essential
to Korea's (Aa2 stable) economy for at least the next two to three
years. It carries out the policy roles of constructing, managing
and operating most of Korea's expressway network, as mandated by
the KEC Act.
In addition, the Korean government will likely step in to provide
assistance in the event of disruptions at KEC to prevent the spread of
substantial contagion risks to the local financial markets and the government-related
issuer (GRI) sector overall.
Moody's assumption of 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 its
Aa2 rating and stable outlook.
As such, Moody's assessment of support is at "Very High"
for KEC under its Joint Default Analysis (JDA) for GRIs. Moody's
assessment of dependence is also "Very High", given
the company's close links to the Korean government as an implementer
of mandated policy roles for the toll road sector under the government's
supervision and strong correlation in credit quality between the company
and the government.
The very high likelihood that the government will provide timely support,
if and when needed, means that KEC's credit quality will remain
closely linked to that of the government and continue to benefit from
multiple notches of uplift from its baseline credit assessment (BCA) of
baa2.
KEC's BCA mainly reflects its stable business profile as a dominant operator
for Korea's toll roads, the ongoing regular support from the government,
and its strong access to the debt and banking markets.
These strengths are tempered by KEC's high debt relative to its cash flow
from operations and a degree of inconsistency in the tariff system that
applies to the company.
Moody's forecasts KEC's funds from operations (FFO)/adjusted debt
and FFO interest coverage to be 6.5%-8.0%
and 2.5x-3.0x and, respectively, over
the next 12-18, similar to the 7.8% and 3.1x
recorded in 2017 and within Moody's expectation for the company's
credit quality.
Moody's expects that increasing traffic volume leading to higher toll
revenue, and ongoing capital injections from the government will
offset any small tariff adjustments to compensate for higher operating
costs and the sizable capital expenditure needed to construct new toll
roads under the government's directives.
KEC's stable outlook is in line with Moody's stable outlook on the
government's rating and reflects Moody's expectation that the company's
strategic importance to and strong support from the government,
if and when needed, will remain intact over the next 12-18
months.
An upgrade of Korea's sovereign rating would likely trigger a review of
KEC's ratings. In addition, KEC's BCA could be upgraded if
FFO/adjusted debt or FFO interest coverage exceed 6%-7%
or 2.5x-3.0x, respectively, on a sustained
basis.
A downgrade of Korea's sovereign rating would result in a downgrade of
KEC's ratings. In addition, the rating could be downgraded
if there are significant adverse changes in its relationship with the
government, or in its policy roles.
KEC's BCA could be lowered if its FFO/adjusted debt or FFO interest coverage
falls below 4%-5% or 2.0x-2.2x,
respectively, on a sustained basis. However, such a
weakening in KEC's credit metrics would not have an immediate impact on
its rating because the very high likelihood of extraordinary support from
the government provides a buffer to the company's rating and can mitigate
the pressure on its BCA.
The methodologies used in this rating were Privately Managed Toll Roads
published in October 2017, and Government-Related Issuers
published in June 2018. Please see the Rating Methodologies page
on www.moodys.com for a copy of these methodologies.
Korea Expressway Corporation (KEC) constructs, manages and operates
Korea's expressway network. The company has been given the exclusive
rights to operate and collect tolls on around 4,000 km of expressways,
representing around 90% of the country's entire expressway network.
It is also involved in ancillary businesses, such as the leasing
of service areas and gas stations along the expressways that it operates.
KEC is 99.98% directly and indirectly owned by the Korean
government (Aa2 stable) through Korea Development Bank (Aa2 stable),
The Export-Import Bank of Korea (Aa2 stable), and Industrial
Bank of Korea (Aa2 stable).
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 credit rating action on the support provider and in relation to
each particular credit 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 credit rating action,
and whose ratings may change as a result of this credit 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.
Moody's considers a rated entity or its agent(s) to be participating
when it maintains an overall relationship with Moody's. Unless
noted in the Regulatory Disclosures as a Non-Participating Entity,
the rated entity is participating and the rated entity or its agent(s)
generally provides Moody's with information for the purposes of
its ratings process. Please refer to www.moodys.com
for the Regulatory Disclosures for each credit rating action under the
ratings tab on the issuer/entity page and for details of Moody's
Policy for Designating Non-Participating Rated Entities.
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
VP - Senior Credit Officer
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
Client Service: 852 3551 3077
Terry Fanous
MD-Public Proj & Infstr Fin
Project & Infrastructure Finance
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
Vivian Tsang
Associate Managing Director
Project & Infrastructure Finance
JOURNALISTS: 852 3758 1350
Client Service: 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
Client Service: 852 3551 3077