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Rating Action:

Moody's assigns Aa2 rating to Korea's global dual-tranche bond offerings

 The document has been translated in other languages

04 Oct 2021

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

No Related Data.
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