Hong Kong, July 20, 2022 -- Moody's Investors Service has assigned a rating of Aa2 to the proposed senior unsecured US dollar notes to be issued by Korea Hydro & Nuclear Power Co., Ltd. (KHNP, Aa2 stable).
The rating outlook is stable.
The notes will be issued under KHNP's existing USD5.0 billion global medium-term note (MTN) program, which is rated (P)Aa2.
KHNP plans to use the net proceeds from the proposed issuance for general corporate purposes, including refinancing maturing debt.
RATINGS RATIONALE
"The Aa2 rating reflects KHNP's close ownership and operational relationship with its parent, Korea Electric Power Corporation, and the company's strategic importance to Korea's economy as the largest power generator and the sole operator of nuclear reactors in the country," says Mic Kang, a Moody's Vice President and Senior Credit Officer.
Moody's expects that both 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 KHNP. Consequently, KHNP's ratings incorporate a six-notch uplift from its standalone credit strength.
KHNP's close relationship with KEPCO is illustrated by KEPCO's 100% ownership of the company and its status as an integral part of the parent's value chain spanning power generation, transmission, distribution and retail. KEPCO – on a standalone basis – and KHNP, along with the other gencos, also balance profits among the group.
KHNP is strategically important to Korea's economy and is subject to the government's close supervision because of its role as the largest power generator that operates baseload nuclear reactors, which ensure the stability and reliability of Korea's power supply.
KHNP's credit quality also reflects the company's solid market position with robust cost competitiveness, as the only nuclear operator in Korea, and its adequate financial metrics for its credit quality. These strengths are counterbalanced by its concentration in nuclear generation amid stringent safety control in nuclear power and its exposure to movements in wholesale power prices.
Moody's forecasts KHNP's funds from operations (FFO)/adjusted debt will stay at 17%-20% over the next 12-18 months, which is similar to or slightly higher than 17.4% in 2021 and lower than 20%-21% in 2019-20. These metrics are within Moody's expectation for KHNP's standalone credit strength, which is six notches lower than its Aa2 rating. Incremental cash from its new nuclear reactors -- including Shin-Hanul unit 1 and Shin-Hanul unit 2 with a capacity of 1.4 gigawatts each – will support KHNP's financial metrics. The units 1 and 2 are scheduled to start commercial operations in the second half (H2) of 2022 and H2 2023, respectively.
ENVIRONMENTAL, SOCIAL AND GOVERNANCE CONSIDERATIONS
KHNP's moderately negative environmental risk exposure is driven by the company's heavy reliance on nuclear for power generation, which results in its moderately negative exposure to waste and pollution risk and physical climate risk.
KHNP's moderately negative social risk exposure is mainly because the operation of nuclear facilities heightens the risk of responsible production and health and safety, while demographics and societal trends that increase public concern over environmental, social or affordability issues could lead to adverse regulatory political intervention.
KHNP's neutral-to-low governance risk exposure is supported by the company's financial strategy and risk management, management credibility and track record, as well as compliance and reporting, which mitigate its concentrated ownership.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
The stable rating outlook for KHNP reflects Moody's expectation that the company's close operational and financial links with KEPCO and its high strategic importance to Korea's economy will remain intact over the next 12-18 months.
An upgrade of KHNP's ratings is unlikely unless Korea's sovereign rating and KEPCO's ratings are upgraded. In such a situation, an upgrade of KHNP's ratings will depend on Moody's assessment then of its strategic importance to the Korean economy and its relationship with KEPCO.
KHNP's standalone credit strength, which is six notches lower than its Aa2 rating, will improve if its FFO/adjusted debt increases to 25% on a sustained basis.
A downgrade of KEPCO's ratings will result in a downgrade of KHNP's ratings. A significant weakening of KHNP's ownership and operational relationship with KEPCO, or a lower strategic importance to Korea's economy would also strain its ratings.
KHNP's standalone credit strength will weaken if its FFO/adjusted debt remains below 18% on a sustained basis. Accordingly, a weakening of KHNP's financial strength relative to Moody's expectation could also strain its ratings, depending on Moody's assessment then of its role, and its operational and financial links with KEPCO.
The principal methodology used in these ratings was Unregulated Utilities and Unregulated Power Companies published in May 2017 and available at https://ratings.moodys.com/api/rmc-documents/75129. Alternatively, please see the Rating Methodologies page on https://ratings.moodys.com for a copy of this methodology.
As of 31 March 2022, Korea Hydro & Nuclear Power Co., Ltd. (KHNP), a nuclear genco, was wholly owned by Korea Electric Power Corporation (KEPCO). The parent company is 51% owned by the government. KHNP was spun off from KEPCO in April 2001.
As of 31 March 2022, KHNP's installed generating capacity totaled 28,620 megawatts (MW), comprising 23,250 MW from its nuclear reactors and 5,370 MW mainly from its hydro capacity and renewables. The company accounts for around 21% of total installed power generation capacity in Korea.
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 on https://ratings.moodys.com/rating-definitions.
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 issuer/deal page for the respective issuer on https://ratings.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 https://ratings.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 https://ratings.moodys.com for the Regulatory Disclosures for each credit rating action, shown on the issuer/deal page, and for Moody's Policy for Designating Non-Participating Rated Entities, shown on https://ratings.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 https://ratings.moodys.com/documents/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 https://ratings.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 https://ratings.moodys.com.
Please see https://ratings.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 issuer/deal page on https://ratings.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
