OREANDA-NEWS. Fitch Ratings has affirmed Korea Student Aid Foundation's (KoSAF) Long-Term Issuer Default Rating (IDR) at 'AA-' and Short-Term IDR at 'F1+'. The Outlook is Stable.

The IDRs were affirmed because KoSAF continues to be a quasi-government financial institution acting as a policy arm of the government, and it is 100% owned by the state.

KEY RATING DRIVERS
KoSAF's ratings are equalised with the ratings of South Korea (AA-/Stable) because of its non-profit quasi-government institution status, importance for higher education in the country and the state's direct guarantee for its bonds, which result in a strong likelihood of extraordinary state support, in case of need. Under Fitch's public-sector entities rating criteria, KoSAF is classified as a credit-linked entity.

The foundation was established in May 2009 under the Korea Student Aid Foundation Act. KoSAF provides loans and scholarships to students from low- to middle-income families. Higher education is a government priority. Fitch expects strong demand for KoSAF's services, as it is important in Korea's competitive society to gain access to a satisfactory career through university education.

The government provides 99.9% of KoSAF's contributed fund capital, and the foundation's policy is dictated and closely monitored by the government of Korea. The management of the foundation is appointed and controlled by the government. Its operations and strategy are under the direct control of the Ministry of Education, while its annual budget plans and the guarantee limit for its bonds are reviewed by the Ministry of Strategy and Finance before submission for approval by the National Assembly. Adherence to budget plans is monitored by the finance ministry.

KoSAF's funding has so far come mainly from issuance of government-guaranteed Korean won-denominated bonds, mainly sold to domestic institutional investors. The National Assembly has authorised KoSAF to issue government-guaranteed bonds of up to KRW4.4trn in 2015. The foundation's standalone credit profile is relatively weak because of its non-profit status and brief history.

At the end of 2014, KoSAF's asset size was KRW11.7trn, with KRW10.9trn (93.2%) of student loans on its balance sheet. KoSAF's non-profit public-service role allowed it to operate at a KRW184.8bn deficit before a KRW232.8bn government contribution in 2014. The government allocates cash contributions to cover the deficit. Fitch expects the government to continue to cover KoSAF's deficits in the future.

RATING SENSITIVITIES
A positive rating action on the sovereign, in conjunction with continued strong support from the state, would lead to a similar change in KoSAF's rating.

A sovereign rating downgrade, significant changes that would lead to a dilution in state ownership and public control, or evident weakening of links with the government, including erosion of the importance of the foundation's public-policy role and its budgeting relationship with the government, could trigger a downgrade.