Hong Kong, January 22, 2018 -- Moody's Investors Service has assigned a Aa2 rating to the proposed senior
unsecured notes of Korea Southern Power Co., Ltd.
(KOSPO).
The rating outlook is stable.
The company plans to use the proceeds for general corporate purposes,
including the refinancing of existing debt.
RATINGS RATIONALE
"The Aa2 rating reflects KOSPO's close operational and financial
relationships with its parent, Korea Electric Power Corporation,
as well as its strategic importance to Korea's economy," says
Mic Kang, a Moody's Vice President and Senior Analyst.
Moody's expects that both Korea Electric Power Corporation (KEPCO,
Aa2 stable) and the Korean government (Aa2 stable) will take strong measures
to contain any material widespread disruptions to KOSPO's operations,
if and when needed, due to the company's important role as
a major power generator in the country. Such an expectation provides
a six-notch uplift to KOSPO's final ratings from its standalone
credit profile.
In June 2016, the Korean government announced its plan to start
the initial public offerings (IPOs) of 20%-30% stakes
in KEPCO's six generation subsidiaries, including KOSPO, from
2017. However, whether and how the announced IPOs will proceed
will remain to be seen, given that no major progress on the planned
IPOs has been made since then, and there has been no updated timeline.
As such, we believe there will be no material changes in KOSPO's
relationships with KEPCO over at least the next two to three years.
KOSPO's standalone credit profile reflects its strong market position
in Korea's power sector, its fuel diversification into coal,
natural gas and oil, and its adequate financial metrics.
At the same time, its standalone credit profile is constrained by
likely weak-to-moderate wholesale electricity prices and
its exposure to tightening environmental standards in Korea.
Moody's expects the profit-sharing program between KEPCO and its
generation subsidiaries — which balances their profits on a standalone
basis at least once a year — and KOSPO's fuel diversity will
partly mitigate the impact of rising fuel prices, weak-to-moderate
wholesale electricity prices, and KOSPO's high capital spending
to develop renewables and improve the efficiency of existing power plants.
Moody's expects that KOSPO's funds from operation (FFO) interest
coverage and FFO/debt will stay at around 7.0x-8.0x
and 20%-22% respectively over the next 12-18
months, up slightly from the around 7x and 19% for the 12
months to 30 September 2017. These projected financial metrics
are consistent with KOSPO's standalone credit profile.
KOSPO's stable ratings outlook reflects Moody's expectation that
the company's close relationship with KEPCO and strong strategic importance
to Korea's economy will remain largely unchanged.
An upgrade of KOSPO's ratings is unlikely, unless Korea's
sovereign rating and KEPCO's ratings are upgraded and the strategic
importance of KOSPO and the company's existing close relationship with
KEPCO are maintained.
A downgrade of KEPCO's ratings would result in a downgrade of KOSPO's
ratings. A significant weakening of KOSPO's ownership and
operational relationships with KEPCO would also strain KOSPO's ratings.
Furthermore, KOSPO's ratings could come under downward pressure
if the company's FFO/adjusted debt or FFO interest coverage remain below
20% or 5.5x-6.0x, on a sustained basis.
The principal methodology used in this rating was Unregulated Utilities
and Unregulated Power Companies published in May 2017. Please see
the Rating Methodologies page on www.moodys.com for a copy
of this methodology.
Korea Southern Power Co., Ltd. (KOSPO) is a thermal
power generation company that is wholly owned by Korea Electric Power
Corporation. The parent company is in turn 51%-owned
by the Korean government. At 30 November 2017, KOSPO accounted
for 9.6% of Korea's total installed power generation
capacity.
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.
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
Vice President - Senior Analyst
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
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