Hong Kong, May 08, 2018 -- Moody's Investors Service has assigned an Aa2 rating to the proposed senior
unsecured US dollar notes to be issued by Korea Water Resources Corporation
(K-water, Aa2 stable).
The ratings outlook is stable.
The notes will be issued under K-water's existing USD2.0
billion Euro medium-term note (MTN) program, which is rated
(P)Aa2.
K-water 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 K-water,
if and when needed, given K-water's important policy
roles in the country's water utility 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 K-water will remain strategically important
to the Korean government (Aa2 stable) for at least the next two to three
years. It carries out the policy roles of constructing, managing
and operating most of the country's water utility assets, as the
exclusive builder of water infrastructure in the country, as well
as the dominant water wholesaler, and as mandated by the K-water
Act.
In addition, the government will likely step in to provide assistance
in the event of disruptions at K-water 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 government support is further underpinned by the
Korean government's strong ability to provide support to K-water
and other major GRIs, given the sovereign's ample financial reserves,
and as reflected by the government's Aa2 rating and stable outlook.
The very high likelihood that the government will provide timely support,
if and when needed, means that K-water's credit quality will
remain closely linked to that of the government and continue to benefit
from uplifts of multiple notches from its baseline credit assessment (BCA).
K-water's ba1 BCA mainly reflects the stable cash flows from the
company's core regulated water supply operations, its dominant market
position in Korea's water utility market, and ongoing regular financial
support from the government.
At the same time, these strengths are tempered by the company's
exposure to its more volatile, unregulated real estate development
projects, as well as its high capital spending in the absence of
transparent and consistent adjustments for water tariffs to compensate
for its investments.
Moody's expects K-water's funds from operations (FFO)/debt and
FFO/interest coverage ratios to stand at 7%-8% and
around 3.0-3.4x respectively over the next 12-18
months, lower than the 8.6% and around 3.4x
recorded in 2017.
The steady operating cash flow from K-water's water utility business
will be small relative to the budgeted annual capital spending of KRW1.4
trillion-KRW2.0 trillion (excluding investments for land
developments) and unlikely prevent its debt leverage from increasing.
The stable outlook on K-water's rating is in line with the stable
outlook on the Korean government's rating. The outlook reflects
Moody's expectation that the company's strategic importance to the economy
and the high likelihood of support from the government will remain intact
over at least the next two to three years.
An upgrade of Korea's sovereign rating could trigger a review of K-water's
rating.
A downgrade of Korea's sovereign rating will result in a downgrade of
K-water's rating. In addition, K-water's rating
could also be downgraded if there are significant adverse changes in its
relationship with the government or in its policy roles.
The methodologies used in these ratings were Regulated Water Utilities
published in December 2015, and Government-Related Issuers
published in August 2017. Please see the Rating Methodologies page
on www.moodys.com for a copy of these methodologies.
Korea Water Resources Corporation operates a state-owned water
utility in Korea and is fully owned by the Korean government (Aa2 stable),
directly and indirectly through Korea Development Bank (Aa2 stable) and
municipal governments.
The company constructs, operates and manages multipurpose dams,
and multi-regional and local water supply systems. It is
also involved in developing industrial complexes assigned by the government.
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.
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
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
