TEXT-S&P: Korea Railroad Corp.'s CHF300 Million Bonds Rated 'A+'
(The following was released by the rating agency)
HONG KONG (Standard & Poor's) Nov. 8, 2012--Standard & Poor's Ratings Services today assigned its 'A+' rating to Korea-based national railroad operator Korea Railroad Corp.'s (KORAIL: A+/Stable/A-1) Swiss Franc (CHF)-denominated 300 million senior unsecured bonds due Nov. 16, 2018.
Standard & Poor's raised its long-term foreign currency rating on KORAIL to 'A+' from 'A' on Sept. 17, 2012, after raising its long-term foreign and local currency credit ratings on the Republic of Korea to 'A+' and 'AA-', respectively, from 'A' and 'A+'. The ratings on KORAIL reflect our opinion that there is an "extremely high" likelihood that the government would provide KORAIL with timely and sufficient extraordinary support if the company were to suffer financial distress.
We assess the stand-alone credit profile (SACP) for KORAIL to be 'bb-'. The SACP reflects KORAIL's "satisfactory" business risk profile, which we base on its monopoly in national railroad operations. The SACP also reflects KORAIL's weak profitability as a result of operating losses in conventional rail network operations and freight services and its ''highly leveraged'' financial risk profile on the grounds of continued weak cash flow and significant investments in noncore businesses such as property development.
The stable outlook reflects our expectation that KORAIL's very important role for and integral link to the government will attract continued government support for the entity.
The rating on KORAIL could come under pressure if the company's policy role or link to the government weaken, such as if the government reduces its stake in the company or the SACP for the company deteriorates to below 'bb-', potentially as a result of a further significant financial burden related to the company's Yongsan International Business District Project in Seoul. Also, we would lower our ratings on KORAIL if we were to lower our ratings on the Republic of Korea.
RELATED RESEARCH AND CRITERIA
2008 Corporate Criteria: Rating Each Issue, April 15, 2008
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