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Rating Action:

Moody's assigns Aa2 rating to Korea's global bond offering

 The document has been translated in other languages

08 Sep 2020

Singapore, September 08, 2020 -- Moody's Investors Service, ("Moody's") has today assigned Aa2 senior unsecured ratings to Korea, Government of's ("Korea") euro-denominated and US dollar denominated notes with maturities ranging between 5-10 years, respectively. The ratings mirror Korea's issuer rating of Aa2 with a stable outlook.

The bonds are direct, unconditional and unsecured external obligations of Korea, and will rank pari passu with all other senior unsecured external debt obligations of the issuer.

RATINGS RATIONALE

Korea's Aa2 government rating reflects: (i) a large, competitive and diversified economy that supports medium-term growth prospects relative to other advanced economies; (ii) strong governance and effective macroeconomic, fiscal and monetary management of shocks, as illustrated during the coronavirus outbreak; and (iii) track record of strong debt management and sound public finances.

Moody's expects the Korean economy's broad diversification, high level of competitiveness, and fiscal space to impart resilience against current and potential future shocks, including the global coronavirus outbreak. For Korea, the main channels of exposure to the pandemic shock stem from its reliance on export-oriented manufacturing, its participation in regionally dispersed supply chains and the consequent spillovers to domestic consumption and investment. Despite a large countercyclical fiscal response leading to a moderate rise in government debt, Korea's fiscal profile will remain largely intact, anchored by strong debt affordability and low exposure to foreign-currency and external debt.

Over the longer term, Korea faces a rapid ageing of its population which will weigh on economic growth and raise the government's funding requirements to meet increased spending on healthcare and other provisions for the elderly. Moody's expects that these effects will be partly offset by comparatively strong productivity growth, supported by investment in innovation such that Korea's potential growth is likely to remain robust as compared to other advanced economies.

Notwithstanding strong credit fundamentals, Korea's credit profile continues to be constrained by its exposure to event risk, reflecting the ongoing very low probability but big impact risk of a military confrontation with North Korea amid the ebb and flow of tensions on the Korean peninsula.

Tensions have neither escalated nor meaningfully abated in recent years. The resumption of weapons testing since last year and the dire economic situation resulting from the continued diplomatic isolation of North Korea point to a non-negligible threat to the status quo.

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 potential exposure to material and long-lasting impediments to global trade and/or a structural slowing in China, as well as unusually pronounced susceptibility to event risk for a Aa-rated credit.

Longer-term credit constraints for the sovereign are predominantly centered on the government's ability to implement structural reforms to maintain its strong economic performance and robust fiscal position against the background of a rapidly ageing society.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

Moody's would consider upgrading Korea's sovereign rating if economic and structural reforms become increasingly likely to durably improve potential GDP growth and mitigate the adverse impact of an ageing population. Moreover, a material and irreversible reduction in geopolitical risk, and a lowering of the threat of warfare on the Korean peninsula would also support a higher rating. 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.

Factors that would prompt a downgrade of South 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 South Korea's economic growth or its strong fiscal position; (2) a much deeper and more sustained damage to the economy from global or domestic shocks that lead to a severe structural impairment of potential growth; (3) a large deterioration in government finances, including material crystallization of state-owned enterprise debt or other contingent liabilities, that materially lowers South Korea's fiscal strength.

These credit ratings and any associated review or outlook have 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.

These credit ratings and any associated review or outlook have 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 these ratings was Sovereign Ratings Methodology published in November 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1158631. Alternatively, 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.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS

Environmental considerations are not material to Korea's credit profile. Given Korea's large industrial sector, a number of sectors are susceptible to carbon transition risks, including automobiles, steel, and shipbuilding, that could dampen the long-term outlook for economic growth; however, Moody's expects that the transition will be gradual, allowing the relevant industries to adjust without incurring significant loss of competitiveness. In addition, Korea is exposed to natural disasters, primarily typhoons and flooding. As in other highly-rated advanced economies, Korea's economic diversification and the strength of the country's institutions provide significant capacity to absorb these shocks.

Social considerations are material to Korea's credit profile. Population ageing and a shrinking domestic working-age population weigh on potential growth, while threatening large increases to healthcare and pension-related spending that will exacerbate the government's debt burden if unaddressed. Moody's regards the coronavirus outbreak as a social risk under its ESG framework, given the substantial implications for public health and safety; in this context, Korea's strong health care system and the effectiveness of its proactive containment measures mitigate related risks to its credit profile.

Governance considerations are material to Korea's credit profile and underpin the Aa2 rating. Effective governance underscores the government's capacity to respond to shocks, imparting resilience to economic growth and macroeconomic stability. Assessments of rule of law, control of corruption and regulatory quality consistent with other developed economies underscore Korea's sound governance framework, although policymaking institutions have shown limited progress on mitigating the effects of Korea's ageing population, such as the erosion of potential growth.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security 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.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

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
Senior Vice President
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: 44 20 7772 5456
Client Service: 44 20 7772 5454

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

No Related Data.
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