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Rating Action:

Moody's assigns Aa3 to Korea East-West Power's USD Notes

 The document has been translated in other languages

24 Nov 2014

Hong Kong, November 24, 2014 -- Moody's Investors Service has assigned a Aa3 senior unsecured rating to Korea East-West Power Company Ltd.'s (EWP, Aa3 stable) proposed USD notes.

The rating outlook is stable.

The company plans to use the proceeds for general corporate purposes, including capital expenditure, working capital and refinancing.

RATINGS RATIONALE

"The Aa3 rating reflects EWP's close relationship with its sole parent and offtaker, Korea Electric Power Corporation, as well as the supportive regulatory environment," says Mic Kang, a Moody's Vice President and Senior Analyst.

Moody's does not expect any material change in the relationship between EWP and Korea Electric Power Corporation (KEPCO, Aa3 stable) over at least the next 2-3 years.

Moody's assessment is based on the Korean government's (Aa3 stable) intention to maintain tight ownership and control over the important industry. The government will likely strengthen the competitiveness of the power companies owned by KEPCO through improvements in management efficiency rather than through privatization-led competition.

"The rating also takes into account EWP's strategic importance as one of the major power generators in Korea, accounting for around 10% of the country's total power generation capacity at end-June 2014," adds Kang.

While higher electricity reserves, as a result of the commissioning of new power generation plants in Korea, will pressure EWP's operating performance, Moody's expects KEPCO's profit sharing program with its six power generation companies to alleviate such pressure.

The profit sharing program balances profits between KEPCO on a standalone basis and its wholly owned power generation companies.

In addition, EWP's ability to pass on to KEPCO most of its risk related to fuel costs -- through the current cost-based pool system -- will also ensure EWP's adequate level of profitability.

Moody's expects EWP's funds from operation (FFO) interest cover and FFO/debt to weaken to below 4.0x and 8%-10% respectively over the next 12-18 months, from an average of 7.0x and 23% for the three years to 2013. These declines will result mainly from the high capital expenditure required to build its new power generation plants relative to its cash flows from operations.

However, Moody's notes that such deterioration in EWP's financial metrics is unlikely to negatively affect its ratings, given its close relationship with KEPCO.

In addition, EWP's new plants will enhance its operating cash flows and improve its financial metrics in the next 2-3 years, when commercial operations begin.

The stable outlook is in line with KEPCO's stable outlook and reflects Moody's expectation that there will be no material change in the ownership and operational relationship between EWP and KEPCO in the near to medium term.

An upgrade of KEPCO's ratings will lead to a corresponding upgrade of EWP's ratings, given the close relationship between the two companies.

Similarly, a downgrade of KEPCO's ratings would result in a downgrade of EWP's ratings.

The principal methodology used in this rating was Regulated Electric and Gas Utilities published in December 2013. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

Korea East-West Power Co. Ltd. (EWP), a thermal power generation company, is wholly owned by Korea Electric Power Corporation (KEPCO), which in turn is 51%-owned by the Korean government. EWP was spun off from KEPCO in April 2001.

As of 31 July 2014, EWP's installed generating capacity totaled 9,134 megawatts (MW), comprising 4,900MW from its coal-fired units, 2,972MW from its liquid natural gas-fired (LNG) units, 1,200MW from its oil-fired units, and 62MW from other sources of energy.

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 rating action on the support provider and in relation to each particular 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.

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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
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
SUBSCRIBERS: (852) 3551-3077

Patrick Mispagel
Associate Managing Director
Project & Infrastructure Finance
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (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
SUBSCRIBERS: (852) 3551-3077

Moody's assigns Aa3 to Korea East-West Power's USD Notes
No Related Data.
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