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Rating Action:

Moody's assigns Aa2 to Korea Western Power's proposed USD MTN drawdown

 The document has been translated in other languages

15 Jul 2019

Hong Kong, July 15, 2019 -- Moody's Investors Service has assigned a Aa2 rating to the proposed senior unsecured US dollar notes to be issued by Korea Western Power Co., Ltd. (KOWEPO, Aa2 stable).

The rating outlook is stable.

The notes will be issued under KOWEPO's existing USD2.0 billion global medium term note (MTN) program, which is rated (P)Aa2.

KOWEPO plans to use the proceeds for general corporate purpose, including refinancing of its maturing debt.

RATINGS RATIONALE

"The Aa2 rating reflects KOWEPO's close operational and financial integration with its parent, Korea Electric Power Corporation, and its 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 both Korea Electric Power Corporation (KEPCO, Aa2 stable) and the Government of Korea (Aa2 stable) will take strong measures to prevent any material widespread disruptions to KOWEPO's operations, if and when needed. Consequently, KOWEPO's ratings incorporate a seven-notch uplift from its baa3-level standalone credit strength.

KOWEPO's close operational and financial links to KEPCO are illustrated by the parent's heavy reliance on its power generation subsidiaries (gencos), including KOWEPO, for the supply of electricity to Korea, and a profit-sharing program that balances profits between KEPCO -- on a standalone basis -- and the gencos, at least once a year.

Moody's expects that there will be no material changes in the gencos' relationships with KEPCO, and that the gencos will remain under the close supervision of the government over at least the next two to three years. This expectation mainly reflects the current administration's focus on the public roles of state-owned and controlled entities.

KOWEPO's standalone credit strength factors in its solid market position as one of the major power generators in Korea, its diversified fuel sources and its adequate financial metrics to maintain its current standalone credit strength. The company's standalone credit strength also reflects its high reliance on coal amid tightening environmental regulations and its exposure to coal price movements.

Moody's projects that KOWEPO's funds from operations (FFO)/adjusted debt will remain around 12%-14% during 2019-20, similar to the 12.5% recorded in 2018, but weaker than the 17%-18% registered for 2016-17, mainly because of a modest recovery in the adjusted coefficients for coal power generation, KOWEPO's increased capital spending, and the temporary shutdown of around one third of its coal-fired capacity for more than four months in 2019. Nevertheless, these projected credit metrics are still within the parameters for KOWEPO's baa3-level standalone credit strength.

The stable ratings outlook for KOWEPO reflects Moody's expectation that its close operational and financial links with KEPCO and high strategic importance to Korea's economy will remain intact over the next 12-18 months.

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

The likelihood of an improvement in KOWEPO's standalone credit strength will be limited over the next 12-18 months, given an unlikely strong rebound in its credit metrics.

A downgrade of KEPCO's ratings will result in a downgrade of KOWEPO's ratings.

A significant weakening of KOWEPO's ownership by, and operational and financial relationship with, KEPCO -- as a result of the government's review of the policy functions of state-owned companies -- or a reduced strategic importance to Korea's economy, would also strain KOWEPO's ratings.

KOWEPO's standalone credit strength could weaken to the ba1 level or below if FFO/adjusted debt falls below 8%-10% on a sustained basis. Accordingly, a weakening in KOWEPO's financial strength relative to Moody's expectation could also strain its rating, depending on Moody's assessment then of its ongoing 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. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Korea Western Power Co., Ltd. (KOWEPO), a thermal generation company, is wholly owned by Korea Electric Power Corporation (KEPCO). The parent company is in turn 51% owned by the Korean government.

At 31 March 2019, KOWEPO's installed generation capacity totaled 11,333 megawatts (MW), comprising 6,100 MW from its coal-fired units, 3,387 MW from its LNG units, 1,400 MW from its oil-fired units and 446 MW from renewables and hydro. The company accounts for around 9% of total installed power generation capacity in Korea.

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.

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.

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

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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