Hong Kong, April 13, 2015 -- Moody's Investors Service has affirmed the Aa3 ratings and changed the
outlook to positive from stable of the following nine Korean government
related issuers (GRIs):
• Korea Electric Power Corporation (KEPCO), Aa3 issuer and
senior unsecured ratings
• Korea Expressway Corporation, Aa3 senior unsecured rating
• Korea Gas Corporation, Aa3 issuer and senior unsecured ratings
• Korea Land and Housing Corporation, Aa3 issuer and senior
unsecured ratings
• Korea National Oil Corporation, Aa3 issuer and senior unsecured
ratings
• Korea Rail Network Authority, Aa3 issuer rating
• Korea Railroad Corporation, Aa3 issuer and senior unsecured
ratings
• Korea Resources Corporation (Kores), Aa3 issuer and senior
unsecured ratings
• Korea Water Resources Corporation, Aa3 issuer and senior
unsecured ratings
Moody's has also affirmed the Aa3 senior unsecured bond rating and changed
the ratings outlook of Minera y Metalúrgica del Boleo, S.A.P.I.
de C.V. to positive from stable. Its bonds are guaranteed
by Kores.
These rating actions follow Moody's decision to revise to positive from
stable the outlook on the Korean government's Aa3 issuer and senior unsecured
ratings on 10 April 2015.
At the same time, Moody's has affirmed Korea District Heating
Corporation's (KDHC) A1 issuer and senior unsecured rating with
a stable outlook.
RATINGS RATIONALE
"The revision in the ratings outlooks for the nine core GRIs, which
exclude KDHC, reflects Moody's recognition that their credit quality
benefits from the Korean government's own improving credit profile,
given the very high likelihood of the government's timely support
to the GRIs, if and when needed," says Mic Kang,
a Moody's Vice President and Senior Analyst.
Moody's considers that the credit quality of these core GRIs will
remain closely linked to that of the government, because of their
high strategic importance and strong policy functions in their respective
sectors, which are mainly utilities, infrastructure,
real estate and energy.
Such a view is also based on the government's very low tolerance for disruptions
at the GRIs, given a high level of reputational and contagion risk,
particularly regarding funding access for various Korean issuers and the
sovereign itself, should a core GRI encounter financial or operating
difficulties.
In addition, the government has established a track record of closely
managing the GRIs' financial health since the introduction of its mid-to-long-term
plans for the financial management of public institutions in 2012 --
indicating its commitment to preventing the GRIs from entering any degree
of financial distress -- and will likely continue to monitor
progress at each entity in terms of their budgets and funding on a periodic
basis.
The positive ratings outlook is in line with that on the government's
ratings. It reflects Moody's expectation that the GRIs' strategic
importance to and strong support from the government, if and when
needed, will -- as indicated -- remain intact.
An upgrade of Korea's sovereign rating will likely trigger an upgrade
of the core GRIs' ratings.
A downgrade of Korea's sovereign rating -- which is unlikely,
given its positive outlook -- will result in a downgrade
of the core GRIs' ratings.
In addition, Moody's would review the ratings in the event of significant
adverse changes in the GRIs' relationships with the government and
their policy roles.
"Meanwhile, a potentially widening gap in the ratings between
the core GRIs and KDHC mainly reflects KDHC's relatively moderate level
of strategic importance to the economy, the government's modest
level of ownership relative to most other GRIs, and the absence
of special legislation for the company which would indicate a very high
likelihood of support," adds Kang.
Upward pressure on KDHC's ratings remains limited, without
stronger forms of legal support and/or material improvements in its standalone
credit profile.
A downgrade of Korea's sovereign rating -- which is unlikely,
given its positive outlook -- could trigger a review for
downgrade of KDHC's ratings. Moreover, a significant weakening
in the company's relationship with the government -- as
evidenced by lower government ownership and a weaker public role --
could also pressure the rating.
In addition, KDHC's rating would come under pressure if its funds
from operation (FFO)/interest or FFO/debt fall below 2.5x-3.0x
or 7%-8% over the cycle.
The principal methodologies used in rating Korea Electric Power Corporation,
Korea Gas Corporation and Korea District Heating Corporation were Government-Related
Issuers published in October 2014 and Regulated Electric and Gas Utilities
published in December 2013. The principal methodologies used in
rating Korea Expressway Corporation were Government-Related Issuers
published in October 2014 and Privately Managed Toll Roads published in
May 2014. The principal methodology used in rating Korea Land and
Housing Corporation, Korea Rail Network Authority and Korea Resources
Corporation was Government-Related Issuers published in October
2014. The principal methodologies used in rating Korea National
Oil Corporation were Government-Related Issuers published in October
2014 and Global Independent Exploration and Production Industry published
in December 2011. The principal methodologies used in rating Korea
Railroad Corporation were Government-Related Issuers published
in October 2014 and Global Passenger Railway Companies published in March
2013. The principal methodologies used in rating Korea Water Resources
Corporation were Government-Related Issuers published in October
2014 and Global Regulated Water Utilities published in December 2009.
Please see the Credit Policy page on www.moodys.com for
a copy of these methodologies.
Korea Electric Power Corporation (KEPCO) is Korea's only fully integrated
electric utility. The state-owned company is the monopoly
operator of the country's electricity transmission and distribution system.
It generated around 84% of the power consumed in Korea through
six wholly owned generation companies in 2014. KEPCO is 51%-owned
by the Korean government (Aa3 positive), directly and indirectly,
as of 31 December 2014. The KEPCO Act requires the government to
maintain a majority stake of at least 51% in KEPCO.
Korea Expressway Corporation, as a 99.98% government-owned
company, is mandated with the responsibility to construct,
manage and operate Korea's network of expressways.
Korea Gas Corporation, as Korea's only fully-integrated natural-gas
company, holds a near monopoly over the import, transmission,
and wholesale of natural gas in Korea. Kogas was 55%-owned
by the Korean government, directly and indirectly, as of 31
December 2014.
Korea Land and Housing Corp, as a 100% state-owned
entity, is charged with implementing land and housing-related
policies in Korea. Its key business areas are: (1) to construct
and supply affordable housing; (2) to develop and supply residential
land, and to develop towns and cities; (3) to develop and supply
industrial complexes; and (4) to manage land bank.
Korea National Oil Corporation (KNOC) is a 100% government-owned
upstream exploration and production company. KNOC is engaged in
the exploration and development of oil and gas fields, oil stockpiling
for strategic purposes, and the on-lending of funds from
the Special Accounts for Energy and Resources.
The Korea Rail Network Authority is an entity established solely with
contributed capital from the Korean government. It executes the
government's policies on railroad infrastructure, by constructing,
managing and upgrading the country's conventional and high-speed
rail networks.
Korea Railroad Corporation is responsible for railroad operations in Korea.
It is 100%-owned by the Korean government. The Korail
Act requires the government to inject 100% of the company's paid-in
capital.
Korea Resources Corp is 100% owned by the Korean government.
The company is tasked with implementing national mineral resources-related
policies in order to promote stability in the country's procurement of
such resources.
Korea Water Resources Corporation operates a state-owned water
utility in Korea and is 100% owned, directly and indirectly,
by the Korean government.
Korea District Heating Corporation (KDHC) is the country's largest provider
of urban heating services, with a market share of around 55%
for all district heating customers at end-2014. The government
has a 75% direct and indirect stake in KDHC.
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.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this rating action, and
whose ratings may change as a result of this 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.
The person who approved Korea Electric Power Corporation's,
Korea Expressway Corporation's, Korea Gas Corporation's,
Korea Rail Network Authority's, Korea Railroad Corporation's,
Korea Water Resources Corporation's, and Korea District Heating
Corporation's credit ratings is Terry Fanous, Managing Director,
Project & Infrastructure Finance, (852) 3758 -1350,
(852) 3551-3077.
The below contact information is provided for information purposes only.
Please see the ratings tab of the issuer page at www.moodys.com,
for each of the ratings covered, Moody's disclosures on the
lead analyst and the Moody's legal entity that has issued the ratings.
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
SUBSCRIBERS: (852) 3551-3077
Gary Lau
MD - Corporate Finance
Corporate Finance Group
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 revises to positive from stable ratings outlooks on nine Korean corporate GRIs
