30.09.2015, 14:16
Fitch Affirms Korea Land and Housing at 'AA-'; Outlook Stable
OREANDA-NEWS. Fitch Ratings has affirmed Korea Land and Housing Corporation's (KLHC)
Long-Term Issuer Default Rating (IDR) at 'AA-', with Stable Outlook. The
ratings on its senior unsecured notes and global medium-term note
programme have also been affirmed at 'AA-'.
KLHC's ratings and Stable Outlook reflect the company's strong ties with the Korean government and its status as the Korean central government's sole policy execution arm for national housing and land development.
KEY RATING DRIVERS
Ratings Equalised with Sovereign: The KLHC's ratings are equalised to the ratings of South Korea (AA-/Stable) because it is a non-profit quasi-government institution and is of strategic importance to the state, which results in a strong likelihood that the state would extend extraordinary support to the company, in case of need.
Critical Government Policy Arm: The company implements the government's land and housing policies to ensure a stable supply of residential housing and efficient use of national land. KLHC is also a major developer of new cities, industrial/logistics complexes and free economic zones.
Solid Government Support: KLHC is entitled to receive compensation from the government for losses incurred in connection with certain eligible public projects if the company fails to maintain an overall level of profitability for a given year. The company also receives regular capital injections (KRW1.1trn in 2014), low-interest long-term funding that is subordinated from the National Housing Urban Fund (34% of total debt in June 2015), and subsidies for public projects.
Strong Control and Supervision: KLHC is directly and indirectly wholly owned by the state and, as such, is closely supervised by the government. It reports to and is supervised by the Ministry of Strategy and Finance and the Ministry of Land, Infrastructure and Transportation. Its president is appointed by the government and its external auditor is also recommended and appointed by the government.
Debt-Reduction Efforts: KLHC has put significant effort to reduce debt, in accordance with the Korean government's initiative to reduce public-sector entities' debt. The company plans to reduce capex by, for example, rescheduling and reducing the scale of projects, cost-cutting and asset sales.
Weak Financials but Adequate Liquidity: Its non-profit quasi-government institution status allows the company to easily access to local and international funding market. The company's weak financial metrics and cash-generating ability are mitigated by the strong government financial and policy support, and it maintains adequate liquidity.
RATING SENSITIVITIES
A positive rating action on the sovereign, in conjunction with continued strong support from the state, would result in a similar change in KLHC's rating.
A sovereign downgrade; significant changes leading to a dilution in state ownership and state control, or a weakening in KLHC's links with the government - including the importance of the entity's public policy role and budgeting relationship - could trigger a rating downgrade.
KLHC's ratings and Stable Outlook reflect the company's strong ties with the Korean government and its status as the Korean central government's sole policy execution arm for national housing and land development.
KEY RATING DRIVERS
Ratings Equalised with Sovereign: The KLHC's ratings are equalised to the ratings of South Korea (AA-/Stable) because it is a non-profit quasi-government institution and is of strategic importance to the state, which results in a strong likelihood that the state would extend extraordinary support to the company, in case of need.
Critical Government Policy Arm: The company implements the government's land and housing policies to ensure a stable supply of residential housing and efficient use of national land. KLHC is also a major developer of new cities, industrial/logistics complexes and free economic zones.
Solid Government Support: KLHC is entitled to receive compensation from the government for losses incurred in connection with certain eligible public projects if the company fails to maintain an overall level of profitability for a given year. The company also receives regular capital injections (KRW1.1trn in 2014), low-interest long-term funding that is subordinated from the National Housing Urban Fund (34% of total debt in June 2015), and subsidies for public projects.
Strong Control and Supervision: KLHC is directly and indirectly wholly owned by the state and, as such, is closely supervised by the government. It reports to and is supervised by the Ministry of Strategy and Finance and the Ministry of Land, Infrastructure and Transportation. Its president is appointed by the government and its external auditor is also recommended and appointed by the government.
Debt-Reduction Efforts: KLHC has put significant effort to reduce debt, in accordance with the Korean government's initiative to reduce public-sector entities' debt. The company plans to reduce capex by, for example, rescheduling and reducing the scale of projects, cost-cutting and asset sales.
Weak Financials but Adequate Liquidity: Its non-profit quasi-government institution status allows the company to easily access to local and international funding market. The company's weak financial metrics and cash-generating ability are mitigated by the strong government financial and policy support, and it maintains adequate liquidity.
RATING SENSITIVITIES
A positive rating action on the sovereign, in conjunction with continued strong support from the state, would result in a similar change in KLHC's rating.
A sovereign downgrade; significant changes leading to a dilution in state ownership and state control, or a weakening in KLHC's links with the government - including the importance of the entity's public policy role and budgeting relationship - could trigger a rating downgrade.
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