Singapore, June 12, 2019 -- Moody's Investors Service ("Moody's") has today assigned a Aa2 senior
unsecured ratings to the Government of Korea's proposed dual-tranche
US dollar-denominated bond offering, including a senior unsecured
bond and green and sustainability bonds. The ratings mirrors the
Government of Korea's issuer rating of Aa2 and 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
The credit profile of Korea balances the country's very strong fundamentals
against some exposure to event risk because of persistent geopolitical
tensions.
Korea's broadly diversified economy and high level of competitiveness
contribute to its strong growth performance compared with other advanced
industrial countries. At the same time, rising global trade
protectionism poses risks for trade-reliant economies such as Korea.
However, overall economic conditions are unlikely to be directly
impacted by capital flow volatility on account of the country's very large
external buffers.
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.
A very strong institutional framework bolsters resilience to potential
economic and financial stability risks, while the government's sound
fiscal position provides scope for countercyclical support for the economy.
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.
Moody's assessment of geopolitical event risk reflects the ongoing
risk of a military confrontation with North Korea given the considerable
uncertainties related to the peace process. In particular,
a recurrence in tensions remains a distinct possibility in the absence
of a well-defined path toward a permanent peace settlement.
ISSUER RATING OUTLOOK
The stable outlook reflects Moody's view that Korea's 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 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.
Event risk is driven by geopolitical considerations that balance the diffusion
of tensions with regards to North Korea over the course of 2018 against
more recent negative developments. Given the absence of a well-defined
path toward permanent peace on the Korean Peninsula, we expect tensions
to periodically recur as demonstrated by the resumption of weapons testing
in early 2019. 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 these ratings was Sovereign Bond Ratings
published in November 2018. 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
