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Fitch Affirms Korea Land and Housing at 'AA-'; Outlook Stable
July 1, 2014 / 5:12 AM / 3 years ago

Fitch Affirms Korea Land and Housing at 'AA-'; Outlook Stable

(The following statement was released by the rating agency) SEOUL/SINGAPORE, July 01 (Fitch) Fitch Ratings has affirmed South Korea-based Korea Land and Housing Corporation's (LH) Long-Term Issuer Default Rating (IDR) at 'AA-', with Stable Outlook. Its senior unsecured debt rating has also been affirmed at 'AA-'. LH's ratings and Stable Outlook reflect the company's strong ties with the Korean government and its status as the Korean government's sole policy execution arm for national housing and land development. KEY RATING DRIVERS Rating Equalised to Sovereign: The ratings of LH are equalised with Korea's (AA-/Stable) due to strong strategic and operational ties. LH is the Korean government's sole policy execution arm for national housing and land development. Over the past five years, LH has provided over 80% of total public land, nearly 20% of total housing and over 60% of rental housing in Korea. Strong Government Support: LH is the only non-financial state-owned enterprise (SOE) that is entitled to receive compensation from the government for losses incurred in connection with certain eligible public projects in the event the company fails to maintain an overall level of profitability for a given year. The company also receives regular capital injections (KRW810bn in 2013), low interest long-term funding that is subordinated from the National Housing Fund (close to 40% of total debt in 2013), and subsidies for public projects. Scaling Back to Reduce Debt: As part of the government's strong push to reduce debt levels at SOEs, LH has shrunk its medium-term business plans and submitted a debt reduction plan to the government, which was approved in April 2014. The company plans to reduce its capital expenditure by taking measures such as rescheduling and reducing the scale of projects, joint ventures and alliances with private sector, cost cutting and asset sales. While this will reduce the debt requirement of LH, it may also lead to a decline in its revenue and profit over the medium term. Weak Standalone Credit Profile: LH's standalone credit profile is expected to remain weak as debt levels are likely to remain high (2013: KRW98trn) due to LH's policy role and on-going projects, which require sizeable capital expenditures. However Fitch expects debt levels and credit metrics to stabilise over the next three to four years with its downsizing and debt reduction efforts. Liquidity Remains Adequate: LH's liquidity remains adequate despite its high level of debt and weak cash generation relative to its debt servicing requirements. This is due to the company's strong access to the domestic capital market because of its status as an important SOE, continued capital injections from the state as well as access to long-term funding through the NHF. RATING SENSITIVITIES Negative: Future developments that may, individually or collectively, lead to a negative rating action - A negative rating action on the sovereign. - The government's inability to curtail the rate of increase in public sector entities' debt such that the state's ability to provide timely adequate support to key public sector entities will be challenged - Weakening of linkages with the state. Positive: Future developments that may, individually or collectively, lead to a positive rating action - A positive rating action on the sovereign, provided that the rating linkages between LH and the state remain intact and that the state's ability to support key state-owned entities remains strong Contact: Primary Analyst Jeong Min Pak Senior Director +82 2 3278 8360 Fitch Ratings Australia Pty Ltd., Korea Branch 9F Kyobo Securities Building 97 Uisadang-daero, Yeoungdeungpo-Gu Seoul, Republic of Korea Secondary Analyst Shelley Jang Associate Director +82 2 3278 8370 Committee Chairperson Buddhika Piyasena Senior Director +65 6796 7223 Media Relations: Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: wailun.wan@fitchratings.com. Additional information is available on www.fitchratings.com Applicable criteria, 'Corporate Rating Methodology: Including Short-Term Ratings and Parent and Subsidiary Linkage", dated 28 May 2014, are available at www.fitchratings.com. Applicable Criteria and Related Research: Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage here Additional Disclosure Solicitation Status here ALL 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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