(The following statement was released by the rating agency)
Jan 08 - Fitch Ratings has assigned South Korea-based KT
Corporation's (KT, 'A'/Stable) proposed JPY senior notes an expected rating of
The final rating is contingent upon receipt of final documents conforming to
information already received.
The notes are rated at the same level as KT's Issuer Default Rating of 'A' as
they represent direct, unconditional, unsecured, and unsubordinated obligations
of the company, ranking equally with other senior unsecured debt and subject to
a negative pledge clause. However, as is common in Korean global bond issuance,
the negative pledge clause does not protect bondholders from subordination
through future grants of senior-ranking security interests to either debt
denominated in Korean won or debt in any currency with a maturity less than one
year from the date of issue.
The ratings reflect KT's position as a fully diversified telecommunications
operator in South Korea, with leading market positions in the fixed-line and
broadband businesses, and the second-largest market share in the wireless
segment. However, Fitch believes that the company has little rating headroom and
that further declines in telecom service margins or EBITDA are likely to lead to
a negative rating action.
Fitch does not foresee any material improvement to KT's operating margins in
2013. This is because telecom operators are likely to continue to pursue
aggressive marketing policies to expand their long term evolution subscriber
base to improve average revenue per user. However, marketing efforts in early
2013, continuing from Q412, are unlikely to be as severe as witnessed in
Q212-Q312, largely due to regulatory curb on excessive competition. For Q113,
the regulatory body has suspended all telecom operators from subscriber
acquisition for about 20 days.
Fitch forecasts that KT's net debt will continue to decline in 2013 with net
debt/operating EBITDAR falling below 1.5x, (1.7x at end-2011), mainly due to
cash received from the securitisation of handset instalment receivables, as well
as reduced capex. KT, on a core telecom operation basis, has reduced net debt to
KRW7.5trn at end-September 2012 from KRW8.5trn at end-2011. However, if KT makes
a sizable debt-funded acquisition to expand its geographical footprint, or to
diversify business portfolio, this would result in a negative rating action.
What Could Trigger A Rating Action?
Negative: Future developments that may, individually or collectively, lead to
negative rating action include
- further deterioration in the operating environment causing core telecom
service margins or EBITDA to decline further
- debt-funded acquisitions leading to core telecom adjusted net debt/operating
EBITDAR over 1.5x on a sustained basis
- negative pre-dividend free cash flow on a sustained basis
Positive: Given the company's difficult regulatory and market environment,
positive rating actions are unlikely in the medium term.