Fitch: Greater Transparency Backs Korean Intent to Trim SOE Debt

Fri Feb 14, 2014 1:40am EST

HONG KONG/SEOUL/SINGAPORE, February 14 (Fitch) The Korean government's steps to heighten transparency of non-financial public sector debt validate our ratings stance toward SOEs, says Fitch Ratings. These measures clarify the level of the public sector debt, and convey official intent to improve its management and sustainability. The steps are largely neutral for the sovereign credit profile, but consistent with our reasons for upgrading the ratings of 12 Korean SOEs in July last year. The latest public sector debt figure is comprehensive and more transparent. It accounts for both central and local government debt as well as the liabilities of other public sector entities - including both non-profit public institutions and non-financial state-owned enterprises. As a result, Korea's public sector debt stood at KRW821.1trn at end-2012, or 64.5% of GDP. The published aggregate public sector debt figure is broadly in line with Fitch's earlier estimates based on information from rated and other large SOEs whose financial data is publicly available. From a sovereign credit perspective, the focus of debt comparisons between sovereigns has been mainly at the general government level (i.e. local and central government debt), as the risks of broader public sector debt are more difficult to assess on a cross-country basis. One reason is that it is more difficult to obtain aggregate comparable public debt statistics. Heightened transparency could help instill greater credit discipline if it results in better management of broader public sector liabilities. In this regard, the government reiterated its plans to stabilise public sector debt through the development of mid- to long-term plans for national, local, and public institutions' debt. The government's approach to managing leverage in the broader public sector is consistent with our rating upgrades of 12 Korean SOEs in July 2013. We had refrained from a concomitant upgrade of SOEs at the time of the last sovereign ratings upgrade to 'AA-' in September 2012. This was because of the deterioration in the standalone credit profiles at most rated SOEs. The onset of broader SOE reforms began shortly after the Park administration took office in February 2013, and these adjustments prompted the upgrades across the sector. Continuing measures to rein in the growth of SOE debt remain very much in evidence. They include allowance of tariff price increases (for KEPCO and KOGAS), higher private-sector participation in selective sectors (such as power generation), and a scaling back of overseas investment (for KOGAS and Korea National Oil Corporation). The government has also recently asked a few SOEs to divest some assets and pay down their debt by 2017. Korea is only the fifth nation in the G20 group to announce a consolidated measure of public debt, and the recent measures are yet another reflection of the authorities' reasonable commitment to tackling the high level of SOE debt. Contacts: Art Woo Director, Sovereigns +65 2263 9925 Jeong Min Pak Senior Director, Corporates +822 3278 8360 Aninda Mitra Senior Director, Fitch Wire Tel: +65 6796 7232 Media Relations: Leslie Tan, Singapore, Tel: +65 67 96 7234, Email: leslie.tan@fitchratings.com; Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: wailun.wan@fitchratings.com. The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings. Applicable Criteria andALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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