TEXT-S&P Samchully 'BBB+' rtg affirmed, outlook neg; rtg withdrawn

Wed Jan 9, 2013 3:14am EST

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(The following statement was released by the rating agency)

Jan 09 - Standard & Poor's Ratings Services today said it had affirmed its 'BBB+' long-term corporate credit rating on Korea-based energy services provider Samchully. We then withdrew our ratings on the company at its request. The rating outlook at the time of the withdrawal was negative.

The affirmed rating prior to the withdrawal reflected our opinion that Samchully is likely to maintain its stable profitability and cash flow from its core gas distribution and retail businesses, backed by its monopoly market position in its mandated service areas and the fuel cost pass-through retail gas pricing system in Korea. On the other hand, Samchully's aggressive growth strategy in nongas businesses constrained its ratings. Its significant debt funded investment of power generation businesses would weigh on the company's financial risk profile over the next two years. Under Standard & Poor's base case scenario, we project that funds from operations to total debt is likely to decline to close to 12% in 2013 from 26% in 2011.

At the time of withdrawal, the negative outlook on Samchully reflected the company's increasingly aggressive investment strategy in nongas businesses and its exposure to construction and execution risk related to building power plants. We see a higher likelihood of the company further expanding its existing community energy service businesses to increase benefits from the addition of power generation to its business mix.

RELATED RESEARCH AND CRITERIA

-- Business Risk/Financial Risk Matrix Expanded, Sept. 18,2012

-- Methodology And Assumptions: Liquidity Descriptors For Global Corporate Issuers, Sept. 28, 2011

-- 2008 Corporate Criteria: Analytical Methodology, April 15, 2008

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