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Rating Action:

Moody's assigns Aa2 to Korea East-West Power's senior unsecured USD notes

22 Apr 2022

Hong Kong, April 22, 2022 -- Moody's Investors Service has assigned a rating of Aa2 to the proposed senior unsecured US dollar notes to be issued by Korea East-West Power Co., Ltd. (EWP, Aa2 stable).

The rating outlook is stable.

Moody's understands that EWP plans to use all or part of the proceeds to refinance existing debt and fund new projects associated with renewable energy and energy efficiency, such as the development, acquisition, and maintenance and upgrade of renewable power facilities and energy efficient equipment or facilities.

RATINGS RATIONALE

"The Aa2 rating reflects EWP's close ownership and operational relationship with its parent, Korea Electric Power Corporation, and the company's strategic importance to Korea's economy as a major power generator," says Mic Kang, a Moody's Vice President and Senior Credit Officer.

Moody's expects that Korea Electric Power Corporation (KEPCO, Aa2 stable) and the Government of Korea (Aa2 stable) will take strong measures, if needed, to contain any material widespread disruptions to the operations of KEPCO's six power generation companies (gencos), including EWP. Consequently, EWP's rating incorporates a seven-notch uplift from its standalone credit strength.

EWP's close relationship with KEPCO is illustrated by KEPCO's 100% ownership in the company and its status as an integral part of the parent's integrated value chain spanning from power generation to transmission, distribution and retail. KEPCO -- on a standalone basis -- and EWP, along with the other gencos, also balance profits among the group.

EWP is strategically important to Korea's economy and subject to the close supervision of the government, because of its role as a dominant power generator focusing on the operations of baseload power plants, which ensure the stability and reliability of power supply in Korea.

EWP's credit quality also reflects its solid market position as one of the major power generators in Korea and its diversified fuel sources mainly from coal and liquefied natural gas. These strengths are counterbalanced by EWP's exposure to movements in wholesale power prices and its high reliance on coal amid tightening environmental regulations.

Moody's expects EWP's financial metrics to continue supporting its standalone credit strength, which is seven notches lower than its Aa2 ratings. EWP's funds from operations (FFO)/adjusted debt is likely to weaken to 15%-19% over the next 1-2 years from 21.4% in 2021, given its operational and financial linkage with KEPCO, which will likely suffer from high fuel costs amid the company's weak track record of timely cost pass-throughs. But the projected financial metrics are within Moody's expectation for EWP's standalone credit strength.

ENVIRONMENTAL, SOCIAL AND GOVERNANCE CONSIDERATIONS

EWP's highly negative environmental risk reflects its heavy reliance on coal for power generation in Korea, which results in its highly negative exposure to carbon transition risk.

EWP's highly negative social risk is mainly because its coal power generation emits a high level of air pollutants, which heighten the risk that public concern over environmental, social or affordability issues could lead to adverse regulatory or political intervention on the company's operations.

EWP's neutral-to-low governance risk is supported by its financial strategy and risk management, management credibility and track record, and compliance and reporting, which mitigate its concentrated ownership.

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

The stable rating outlook for EWP reflects Moody's expectations that the company's close operational and ownership relationship with KEPCO, and its high strategic importance to Korea's economy will remain intact over the next 12-18 months.

An upgrade of EWP's ratings is unlikely unless Korea's sovereign rating and KEPCO's ratings are upgraded. In such a situation, an upgrade of EWP's ratings will depend on Moody's assessment then of the company's strategic importance to Korea's economy and its relationship with KEPCO.

EWP's standalone credit strength, which is seven notches lower than its Aa2 ratings, could improve if its FFO/adjusted debt increases to 18% on a sustained basis.

A downgrade of KEPCO's ratings will result in a downgrade of EWP's ratings. A significant weakening of EWP's ownership and operational relationship with KEPCO or a lower strategic importance to Korea's economy would also strain its ratings.

EWP's standalone credit strength could weaken if its FFO/adjusted debt remains below 10% on a sustained basis. Accordingly, a weakening of EWP's financial strength relative to Moody's expectation could also strain its ratings, depending on Moody's assessment then of its role, and operational and financial links with KEPCO.

The principal methodology used in this rating was Unregulated Utilities and Unregulated Power Companies published in May 2017 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1066389. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Korea East-West Power Co., Ltd. (EWP) is a thermal generation company that is wholly owned by Korea Electric Power Corporation (KEPCO). The parent company is 51% owned by the government.

As of 31 December 2021, EWP's installed generation capacity totaled 10,776 megawatts (MW), comprising 6,440 MW from its coal-fired units, 2,972 MW from its liquefied natural gas-fired units and 1,200 MW from its oil-fired units and 164 MW from renewable and other resources. EWP accounted for around 8% of the total installed power generation capacity in Korea as of 31 December 2021.

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

This rating is solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Moody's considers a rated entity or its agent(s) to be participating when it maintains an overall relationship with Moody's. Unless noted in the Regulatory Disclosures as a Non-Participating Entity, the rated entity is participating and the rated entity or its agent(s) generally provides Moody's with information for the purposes of its ratings process. Please refer to www.moodys.com for the Regulatory Disclosures for each credit rating action under the ratings tab on the issuer/entity page and for details of Moody's Policy for Designating Non-Participating Rated Entities.

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_1288235.

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.

The first name below is the lead rating analyst for this Credit Rating and the last name below is the person primarily responsible for approving this Credit Rating.

Mic Kang
VP - Senior Credit Officer
Project & Infrastructure Finance
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong,
China (Hong Kong S.A.R.)
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

Yian Ning Loh
Associate Managing Director
Project & Infrastructure Finance
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

Terry Fanous
MD-Public Proj & Infstr Fin
Project & Infrastructure Finance
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

Releasing Office:
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong,
China (Hong Kong S.A.R.)
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

No Related Data.
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