Fitch Rates IBK's Senior Unsecured USD Notes 'AA-(EXP)'
Fitch expects the issue size to be USD500m and the tenor of the notes to be five years. These are subject to change depending on market conditions. The notes will be issued under the bank's existing USD8bn global medium-term note programme, which was last updated on 15 April 2015 at the Singapore Exchange Securities Trading Limited.
The proceeds from the new issue will be used for the bank's general operations, including extending foreign-currency loans and repaying maturing debt and other obligations.
KEY RATING DRIVERS
The notes are rated at the same level as IBK's Long-Term Foreign Currency Issuer Default Rating (IDR) as they will constitute direct, unconditional, unsecured and unsubordinated obligations of the bank. The bank's IDR is equalised with South Korea's rating (AA-/Stable) to reflect the de facto solvency guarantee. According to Article 43 of the Industrial Bank of Korea Act, the government is responsible for any losses incurred by the bank but not covered by the bank's reserves. IBK is effectively 54.9%-owned by the state (51.5% directly, 1.9% through Korea Development Bank (AA-/Stable), and 1.5% through the Export-Import Bank of Korea (AA-/Stable)).
RATING SENSITIVITIES
The ratings on IBK would be directly affected by changes to South Korea's ratings or to its relationship with the government (for example, a change to the aforementioned solvency guarantee). Fitch does not expect any significant changes to either.
As a policy bank, IBK is mandated to provide credit to SMEs, and it focuses on small but viable manufacturers. IBK's importance in supplying funds to SMEs, especially when the system is under stress, has been well acknowledged by the state. Although the state's stake in IBK has declined significantly since November 2013 from 72.3%, Fitch believes the government is committed to keep a majority stake in the bank.
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