OREANDA-NEWS. Fitch Ratings has assigned South Korea-based Shinsegae Inc.'s (Shinsegae) proposed US dollar guaranteed subordinated notes an expected 'A(EXP)' rating.

The rating reflects the credit enhancement provided to investors by the guarantee from Kookmin Bank. Fitch considers the first call date when the guarantee would terminate as the effective maturity date of the securities.

The final rating is contingent upon the receipt of final documentation and legal opinions conforming to information already received.

KEY RATING DRIVERS

Kookmin Bank as Guarantor: The rating reflects the unconditional and irrevocable guarantee from Kookmin Bank (A/Stable). The note is rated at the same level as Kookmin Bank's Long-Term Issuer Default Rating (IDR) as its guarantee makes the notes the bank's direct, general, unsubordinated and unconditional obligations, which will rank at least pari passu with all other present and future unsubordinated and unsecured obligations of Kookmin Bank.

Effective Maturity Date: Fitch views the first call date as the effective maturity date. According to the terms of the notes, unless the notes have been fully redeemed before the first call date in 2020, the first call date would be the date when the guarantee would no longer be effective.

Fitch assumes all bond holders will execute the "No Call Put Right" of the notes on the first call date due to the termination of guarantee. The "No Call Put Right" states that if the issuer elects not to redeem the notes on the first call date, each holder has the right to sell the note in whole to the guarantor.

Shinsegae's Credit Not Considered: Shinsegae's standalone credit strength is not a consideration in the instrument rating as the guarantee remains in force even if Shinsegae is declared bankrupt.

RATING SENSITIVITIES

Since the rating on the credit enhanced bonds is based solely on Kookmin Bank's guarantee, any change in Fitch's assessment of Kookmin Bank's ratings will result in an equivalent change in the rating of this bond.

For the ratings of Kookmin Bank, the following sensitivities were outlined by Fitch in its Rating Action Commentary dated 2 June 2014:

- Kookmin's IDRs are driven by its Viability Rating (VR), which is underpinned by its substantial domestic retail operations, sound loan quality and strong capitalisation.

- A sustainable, significant improvement in Kookmin's foreign-currency funding/liquidity profile may result in positive rating action on its VR. However, such prospects are remote, considering the challenging business environment and the fact that Korean households are unlikely to own significant amounts of foreign currency.

- Negative rating action on the bank's VR could result from an increase in risk appetite, including rapid growth or weakened loan quality, leading to erosion of its capitalisation. However, Fitch does not expect the quality of Kookmin's loans to weaken substantially in the foreseeable future.