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Rating Action:

Moody's assigns Aa2 to Korea Expressway Corp's USD MTN drawdown

 The document has been translated in other languages

10 May 2021

Hong Kong, May 10, 2021 -- Moody's Investors Service has assigned an Aa2 rating to the proposed senior unsecured US dollar notes to be issued by Korea Expressway Corporation (KEC, Aa2 stable).

The rating outlook is stable.

The notes will be issued under KEC's existing USD3.5 billion global medium-term note (MTN) program, which is rated (P)Aa2.

KEC plans to use the net proceeds from the proposed issuance to finance or refinance, in whole or in part, new or existing eligible green and social projects that include (1) the development of green buildings and renewable power, (2) the promotion of clean transportation, (3) measures to prevent and control pollution, (4) the conservation of terrestrial biodiversity, and (5) the establishment of pandemic support initiatives and financial support for small and medium-sized enterprises.

RATINGS RATIONALE

"The Aa2 rating reflects our assessment of a very high likelihood of extraordinary support for KEC from the Government of Korea, which underpins a six-notch uplift to its rating from its baseline credit assessment," says Mic Kang, a Moody's Vice President and Senior Credit Officer.

This assessment is based on the Government of Korea's (Aa2 stable) very high willingness and strong ability to provide support to KEC, given the sovereign's ample financial reserves, as reflected in its Aa2 rating.

KEC's baa2 Baseline Credit Assessment (BCA) takes into account its dominant position in Korea's toll road sector, its resilient traffic volume against coronavirus-related disruptions, and adequate financial metrics, which are also supported by regular capital injections from the government. These strengths are tempered by the low visibility on toll rate adjustments and KEC's increasing capital spending to construct new toll road projects.

Moody's expectation of a very high likelihood of government support in times of need is based on KEC's critical policy roles in Korea's transportation industry, with a mandate to construct, operate and maintain most toll roads in the country, under the supervision of the government.

This assumption of support also considers Moody's expectation that the government will provide assistance in the event of disruptions at KEC, to prevent the spread of substantial contagion risks to local financial markets and the overall government-related issuer (GRI) sector. The government has also established a track record of closely monitoring and managing the financial health of KEC and other GRIs, indicating its commitment to preventing financial distress at KEC.

Moody's does not expect any material changes in KEC's linkage with the government for at least the next 2-3 years, owing to the company's important policy role.

As such, Moody's has maintained its assessment of "Very High" support for KEC, under Moody's Joint Default Analysis for GRIs.

Moody's has also continued to assess KEC's dependence on the Korean government as "Very High", because of the close operational and financial linkages between the two entities.

Moody's expects KEC's funds from operation (FFO) to adjusted debt ratio will fall to 5%-6% over the next 12-18 months from around 6.3% in 2020, mainly because of the company's growing debt to fund its increasing capital spending for new toll roads, which will more than offset a recovery of traffic volume. These credit metrics will continue to position KEC's BCA at baa2.

Moody's has also considered the following environmental, social and governance (ESG) factors.

The spread of the coronavirus exposing the public to health and safety risks will continue to have an adverse impact on the Korean public's desire to move around and commute for social gatherings and business meetings. But KEC's traffic volume will likely remain resilient in the absence of a nationwide lockdown, because driving in private vehicles on toll roads will continue to be considered safer than using public transportation.

KEC's exposure to environmental risk is low, because economic activities, business sentiment, leisure activities and population growth will drive traffic volumes and mitigate the adverse impact on traffic volumes from potentially higher fuel costs from carbon regulation and air quality and traffic control measures.

In terms of governance, KEC's debt funding to cover part of the capital spending required to construct new toll roads will increase. However, tight supervision by and extraordinary support from the Korean government will mitigate this risk.

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

The stable outlook on KEC's ratings is in line with the stable outlook on the Korean government's rating, and reflects Moody's expectation that the company's strategic importance to and strong support from the government, if and when needed, will remain intact over the next 12-18 months.

An upgrade of Korea's sovereign rating will likely trigger a review of KEC's ratings. Moody's could upgrade KEC's BCA if its FFO/debt exceeds 7% on a sustained basis.

A downgrade of Korea's sovereign rating will result in a downgrade of KEC's ratings. In addition, Moody's could downgrade the company's rating if there are significant adverse changes in its relationship with the government or in its policy role.

Moody's could downgrade KEC's BCA if its FFO/debt falls below 5% on a sustained basis. However, such a weakening in KEC's credit metrics would not have an immediate impact on the company's ratings because of the very high likelihood of extraordinary support from the government, which provides a buffer to the ratings.

The methodologies used in this rating were Privately Managed Toll Roads Methodology published in December 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1244932, and Government-Related Issuers Methodology published in February 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1186207. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of these methodologies.

Korea Expressway Corporation (KEC, Aa2 stable) constructs, manages and operates Korea's expressway network. As of December 2020, KEC was 99% owned by the Government of Korea (Aa2 stable), directly or indirectly.

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_1263068.

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

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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