Hong Kong, June 16, 2022 -- Moody's Investors Service has assigned a Aa2 rating to the proposed senior unsecured USD 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.
Moody's understands that KOWEPO plans to use all or part of the proceeds to finance or refinance new or existing projects associated with renewable energy, eco-friendly hydrogen and energy efficiency.
RATINGS RATIONALE
"The Aa2 rating reflects KOWEPO'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 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 KOWEPO. Consequently, KOWEPO's ratings incorporate a seven-notch uplift from its standalone credit strength.
KOWEPO'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 integrated value chain spanning power generation, transmission, distribution and retail. KEPCO – on a standalone basis – and KOWEPO, along with the other gencos, also balances profits among the group.
KOWEPO is strategically important to Korea's economy and is subject to the government's close supervision because of its role as a dominant power generator that operates baseload power plants, which ensure the stability and reliability of Korea's power supply.
KOWEPO's credit quality also reflects the company's solid market position as a major power generator in Korea and its diversified fuel sources mainly from coal and liquefied natural gas. These strengths are counterbalanced by the company's exposure to wholesale power price movements and its high reliance on coal amid tightening environmental regulations.
Moody's expects KOWEPO's financial metrics to continue supporting its standalone credit strength, which is seven notches lower than its Aa2 ratings. Its metrics will likely weaken or remain similar to the 2021 levels, given the company's operational and financial linkages with KEPCO. KEPCO will likely suffer from high fuel costs amid the company's weak track record of timely tariff adjustments, while the company has tended to bear the brunt of losses stemming from the lack of such adjustments. Moody's projects KOWEPO to record funds from operations (FFO)/adjusted debt of 12%-15% over the next 1-2 years. These financial metrics are within Moody's expectation for KOWEPO's standalone credit strength.
ENVIRONMENTAL, SOCIAL AND GOVERNANCE CONSIDERATIONS
KOWEPO's highly negative environmental risk exposure is driven by the company's heavy reliance on coal for power generation, which results in its highly negative exposure to carbon transition risk.
KOWEPO's highly negative social risk exposure is mainly due to the high level of air pollutants its coal power generators emit. This heightens the risk that public concern over environmental, social or affordability issues could lead to adverse regulatory or political intervention on the company's operations.
KOWEPO's neutral-to-low governance risk exposure is supported by the company's 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 KOWEPO reflects Moody's expectation 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 KOWEPO's ratings is unlikely unless Korea's sovereign rating and KEPCO's ratings are upgraded. In such a situation, an upgrade of KOWEPO's ratings will depend on Moody's assessment of the company's strategic importance to Korea's economy and its relationship with KEPCO.
KOWEPO's standalone credit strength, which is seven notches lower than its Aa2 ratings, could improve if the company's FFO/adjusted debt increases to 18% on a sustained basis.
A downgrade of KEPCO's ratings will result in a downgrade of KOWEPO's ratings. A significant weakening of KOWEPO's ownership and operational relationship with KEPCO, or a lower strategic importance to Korea's economy would also strain its ratings.
KOWEPO's standalone credit strength could weaken if the company's FFO/adjusted debt remains below 10% on a sustained basis. Accordingly, a weakening of KOWEPO's financial strength relative to Moody's expectation could also strain its ratings, depending on the agency's assessment then of the company's 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://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.
Korea Western Power Co., Ltd. (KOWEPO) 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 March 2022, KOWEPO's installed generation capacity totaled 11,456 megawatts (MW), comprising 6,100 MW from its coal-fired units, 4,787 MW from its gas-fired units and 569 MW from renewables and others. KOWEPO accounted for around 9% of Korea's total installed power generation capacity as of 31 March 2022.
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.
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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
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China (Hong Kong S.A.R.)
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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
