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
