Singapore, October 04, 2021 -- Moody's Investors Service, ("Moody's") has
today assigned Aa2 senior unsecured ratings to the Government of Korea's
US dollar-denominated and Euro-denominated notes with prospective
maturities of 10 years and 3-5 years, respectively.
According to the terms and conditions available to Moody's, the
bonds to be issued under the government's existing shelf programme filed
with the Securities and Exchange Commission (SEC) in the U.S.
will constitute direct, unconditional and unsubordinated external
obligations of the Government of Korea.
The bonds will rank pari passu with all current and future senior unsecured
external debt obligations of the issuer. A portion of the proceeds
from the bonds will be used to fund eligible projects under the government's
Green and Sustainability Bond Framework, while another portion will
become part of the Foreign Exchange Stabilization Fund.
The ratings mirror the Government of Korea's issuer rating of Aa2 with
a stable outlook.
RATINGS RATIONALE
Korea's Aa2 issuer rating is supported by: (i) a large, competitive
and diversified economy that supports medium-term growth prospects
at a favorable level compared to many other advanced economies; (ii)
governance and policy effectiveness consistent with other highly-rated
peers; and iii) a robust external payments position.
These strengths are balanced against long-term pressures on actual
and potential growth arising from a rapidly aging population and the ongoing
risk of military confrontation with North Korea, which poses unusually
pronounced exposure to event risk for a sovereign in the Aa-rated
category. Moreover, rising government debt will test the
long-established track record of fiscal discipline.
While the coronavirus pandemic has posed an unprecedented credit shock
across many sectors, regions and markets, Korea's economy
has performed stronger relative to many of its advanced economy peers,
recording only a minor contraction in 2020. The Korean economy's
broad diversification, competitive advantage in export-led
manufacturing, and fiscal space have contributed to its resilience,
and Moody's expects economic growth to rebound strongly in 2021.
Korea's public institutions have a track record of implementing
effective responses to global shocks that have helped to preserve robust
growth potential, as well as broad macroeconomic and financial stability.
Since early 2020, for example, effective deployment of monetary
and fiscal policies have helped to ameliorate much of the negative pressures
stemming from the pandemic shock.
Korea's public finances have eroded recently, driven by both
the impact of the policy response to the pandemic and the fiscal expansion
ahead of the pandemic shock. The government's medium-term
outlook following the pandemic shock also represents somewhat of a departure
from the historical pattern of post-crisis fiscal consolidation,
given current projections of higher public spending, persistent
deficits and a consequently higher debt burden. Nevertheless,
debt affordability will remain robust, anchored by both the comparatively
low amount of debt versus peers and the Bank of Korea's strong track record
of inflation management, which has kept domestic interest rates
low and stable.
Lastly, persistent political and military tensions with North Korea
will continue to be the key driver of Moody's assessment of political
risk, as well as overall event risk for South Korea. The
likelihood of an outbreak of violence in the Korean Peninsula has been
influenced not only by the bilateral relationship between North and South,
but also the extent to which major powers such as the US and China regard
North Korea as a threat to their national security. The resumption
of weapons testing and an escalation of the North's aggressive rhetoric
over the past year are consistent with Moody's view that a recurrence
in tensions in the Korean Peninsula remains a distinct possibility in
the absence of a well-defined path toward a permanent peace settlement.
ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
Korea's ESG credit impact score is Positive (CIS-1),
reflecting low exposure to environmental and social risk, supported
by a very strong governance profile and robust track record in responding
to shocks.
Korea's E issuer profile score is Neutral-to-Low (E-2),
reflecting low exposure to environmental risks across most categories.
A number of large industrial sectors, including automobiles,
steel and shipbuilding, are susceptible to carbon transition risks,
though headway has been made in pursuit and adoption of green technology.
Air pollution poses more severe risks, prompting the government
to pursue mitigation measures including tighter emissions standards for
power generation, industry and transportation.
Moody's assesses Korea's exposure to social risk to be Neutral-to-Low
(S-2 issuer profile score), reflecting robust social infrastructure
and the ease of access to basic services, as well as moderate risks
posed by income inequality. Similar to many advanced economies,
population ageing and a shrinking working-age population weigh
on potential growth, threatening large increases to healthcare and
pension-related spending that will exacerbate the government's
debt burden if unaddressed.
Korea's strong quality of institutions and effective policy making
are captured by a Positive G issuer profile score (G-1),
underscoring the authorities' capacity to respond to shocks, which
imparts resilience to economic growth and macroeconomic stability.
Assessments of rule of law, control of corruption and regulatory
quality consistent with other developed economies affirms Korea's
sound governance framework.
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.
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 were 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 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.
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.
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 http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288435.
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.
The Global Scale Credit Rating on this Credit Rating Announcement was
issued by one of Moody's affiliates outside the UK and is endorsed by
Moody's Investors Service Limited, One Canada Square, Canary
Wharf, London E14 5FA under the law applicable to credit rating
agencies in the UK. Further information on the UK 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
