Singapore, September 13, 2018 -- Moody's Investors Service ("Moody's") has today assigned a Aa2 senior
unsecured ratings to the Government of Korea's dual-tranche
US dollar-denominated bond offering with maturities in 2028 and
2048. The ratings mirrors the Government of Korea's issuer
rating of Aa2 with a stable outlook.
The bonds are direct, unconditional and unsecured obligations of
the Government of Korea and will rank pari passu with all other senior
unsecured debt obligations of the issuer.
RATINGS RATIONALE
Korea's Aa2 government rating reflects: (1) a large and diversified
economy that will continue to demonstrate resilience to global shocks,
(2) sound public finances that are further enhanced by ongoing implementation
of structural reforms, and (3) the recent lowering of historical
bilateral tensions with North Korea, although geopolitical risk
remains elevated.
Moody's expects Korea's healthy real GDP growth to continue in the near
term, supported by the still favorable—albeit slowing—outlook
for external demand, accommodative fiscal policies, and robust
consumption on the back of steady income growth. At the same time,
rising global trade protectionism poses risks for trade-reliant
economies such as Korea, while domestically, high levels of
household debt could potentially adversely impact private consumption.
Over the medium term, Korea's growth potential is likely to slow
as an aging population leads to declines in the working age population.
Moody's expects that these effects will be partly offset by comparatively
strong productivity growth, supported by investment in innovation.
Beside robust growth potential, Moody's expects Korea's economy
to continue to show a high degree of resilience to shocks, including
external shocks. The Korean economy's broad diversification,
high level of competitiveness, and fiscal space mitigates its export
dependency. Moreover, overall economic conditions are unlikely
to be directly impacted by tightening global liquidity conditions or capital
flow volatility on account of the country's very large external
buffers.
Korea's public finances are characterized by its consistent fiscal surpluses
on a consolidated basis (including the social security funds balance),
moderate general government debt levels, low gross financing needs,
very strong debt affordability, and very low shares of foreign-currency
and external debt. Moody's expects Korea's debt burden to remain
stable at around 40% of GDP over the next five years. Debt
affordability will remain robust compared to highly-rated peers,
anchored by both the comparatively low amount of debt and the Bank of
Korea's strong track record of inflation management, which has kept
domestic interest rates low and stable.
Developments since the beginning of 2018 have significantly lowered tensions
that, in Moody's assessment, had raised the probability of
military conflagration over the previous year. Following the spate
of missile launches, nuclear test, and other demonstrations
of its military capability in 2017, North Korea has stepped up its
diplomatic engagement with the international community and Korea,
in particular. Moody's assessment of the threat to Korea's profile
posed by geopolitical risk remains "moderate". Even if the risk
of armed conflict has ebbed, considerable uncertainties related
to the peace process persist.
ISSUER RATING OUTLOOK
The stable outlook on Korea's sovereign issuer rating reflects Moody's
view that credit strengths and challenges are balanced, with strong
fundamentals offset by unusually pronounced exposure to event risk for
a Aa-rated credit. Korea's credit fundamentals will remain
strong under Moody's baseline scenario, and its fiscal and
external buffers impart resilience to adverse shocks. However,
longer-term credit constraints are predominantly centered on the
administration's ability to implement structural reforms to maintain its
strong economic performance and robust fiscal position against the background
of a rapidly ageing society. The recent de-escalation of
geopolitical tensions mitigates the persistence of the threat of armed
conflict in the absence of a permanent peace settlement in the Korean
peninsula. Any military conflagration would damage the economy,
the functioning of the government and its finances, and potentially
the country's payment system. The severity of the credit
impact would depend on the duration and intensity of the conflict.
WHAT COULD CHANGE THE RATING UP/DOWN
Moody's would consider upgrading Korea's sovereign rating
if there was a material and irreversible reduction in geopolitical risk,
and in particular a lowering of the threat of warfare on the Korean peninsula.
Such a development would likely involve significant and tangible steps
to be taken towards denuclearization and a permanent peace settlement
between South and North Korea, as well as towards an ending of North
Korea's economic and diplomatic isolation. Further traction
of economic and structural reforms that durably improve potential GDP
growth and mitigate the adverse impact of an ageing population would also
be credit positive.
Factors that would prompt a downgrade of Korea's sovereign rating
include: (1) a heightening of geopolitical risks, such as
escalating tensions that would increase risks of an outbreak of military
conflict on the Korean peninsula and/or the collapse of the North Korean
regime, that would in turn threaten Korea's economic growth
or its strong fiscal position; (2) a backtracking in ongoing structural
reforms that would exacerbate the long-term negative impact from
an aging population; (3) a large deterioration in government finances,
including material crystallization of state-owned enterprise debt
or other contingent liabilities, that renders Korea's fiscal
strength materially lower.
This credit rating and any associated review or outlook has been assigned
on an anticipated/subsequent basis. Please see the most recent
credit rating announcement posted on the issuer's page on www.moodys.com,
under the research tab, for related economic statistics included
in rating announcements published after June 3, 2013.
This credit rating and any associated review or outlook has been assigned
on an anticipated/subsequent basis. Please see the most recent
credit rating announcement posted on the issuer's page on www.moodys.com,
under the research tab, for related summary rating committee minutes
included in rating announcements published after June 3, 2013.
The principal methodology used in this rating was Sovereign Bond Ratings
published in December 2016. Please see the Rating Methodologies
page on www.moodys.com for a copy of this methodology.
The weighting of all rating factors is described in the methodology used
in this credit rating action, if applicable.
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.
Christian de Guzman
VP - Senior Credit Officer
Sovereign Risk Group
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
Marie Diron
MD - Sovereign Risk
Sovereign Risk Group
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
Releasing Office:
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
