September 27, 2017 / 12:24 PM / 10 months ago

Fitch Affirms Korea Land and Housing Corporation at 'AA-'; Assigns Senior Unsecured Notes 'AA-'

(The following statement was released by the rating agency) HONG KONG, September 27 (Fitch) Fitch Ratings has affirmed Korea Land and Housing Corporation's (KLHC) Long-Term Foreign-Currency Issuer Default Rating at 'AA-' with Stable Outlook. Concurrently, the agency has affirmed KLHC's USD2.5 billion global medium-term note programme and HKD600 million senior unsecured notes at 'AA-' and has also assigned the company's HKD470 million senior unsecured notes under the programme a final rating of 'AA-'. Net issue proceeds will be used to refinance existing debt and for general corporate purposes. The notes constitute the issuer's direct, unconditional, unsecured and unsubordinated debt and rank pari passu with all its other outstanding unsecured and unsubordinated obligations. KEY RATING DRIVERS Ratings Equalised with Sovereign: KLHC's ratings are equalised with those of Korea (AA-/Stable), reflecting the company's crucial strategic importance to government policy and the high probability of extraordinary government support, if needed. Legal Status - Midrange: KLHC is a wholly government-owned quasi-market-type corporation. The company was established in 2009 under the Korea Land and Housing Corporation Act, which stipulates that the government must contribute 100% of KLHC's capital and cover any losses incurred in relation to eligible public projects in case of insufficient reserves. Strategic Importance - Stronger: KLHC is a flagship execution body of the government's land and housing policies and Korea's largest non-listed public-sector entity by total assets as of end-2016. KLHC undertakes the crucial role of promoting social-housing welfare, efficient use of national land and sustainable national economic growth. The company implemented 57% of Korea's land development, 10% of the country's residential housing supply and 62% of rental housing in the past six years. A strengthened housing-welfare policy direction under the new administration would reinforce KLHC's strategic importance. Control - Stronger: KLHC operates under the Ministry of Land, Infrastructure and Transport (MoLIT) and Ministry of Strategy and Finance (MoSF). MoLIT is closely involved in KLHC's overall operations, including major business decisions, business execution as well as its mid- and long-term financial management plans. MoSF engages in personnel management, performance evaluation and annual budget plans. The president of Korea appoints KLHC's president and audits are conducted by internal and external auditors. Integration - Stronger: The government supports KLHC's credit quality by injecting capital -usually at around 3% of total equity - compensating for eligible losses, guaranteeing the repayment of interest and principal of issued debt and providing low-cost government funding through the National Housing Fund with favourable borrowing terms, including long grace periods and subordinated debt treatment. This allows KLHC to lower its cost of debt. Financial Profile - Decreasing Debt: Ongoing net debt/adjusted EBITDA fell to 12.2x in 2016, from 16.5x in 2015, due to the supportive government policies and diversified funding channels for long-term debt, which totals 83% of total debt. Its improving gearing ratio, measured by debt/equity, was 2.1x in 2016 (2013: 3.4x). We expect total debt to further decrease to 1.7x in 2018 due to solid government debt management. Revenue decreased by 3.3% yoy to KRW23 trillion in 2016, following a compound annual growth rate of 7.9% between 2013 and 2016, but KLHC's gross profit margin rose to 16.3% in 2016, from 8.4% in the previous year, following robust new town projects. In addition, the company's adjusted EBITDA interest coverage ratio further edged up to 2.1x from 1.6x. RATING SENSITIVITIES Credit-Linked to Sovereign: An upgrade of Fitch's credit view on the sovereign may trigger positive rating action on KLHC. Triggers for Downgrade: A sovereign downgrade, significant changes leading to a dilution of ownership or control, weakened government links or languishing importance of its public-policy role may lead to negative rating action. Contact: Primary Analyst Ethan Lee Associate Director +852 2263 9912 Fitch (Hong Kong) Limited 19/F Man Yee Building 68 Des Voeux Road Central, Hong Kong Secondary Analyst Samuel Kwok Associate Director +852 2263 9961 Committee Chairperson Vladimir Redkin Senior Director +7 495 956 2405 Media Relations: Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: Additional information is available on Applicable Criteria International Local and Regional Governments Rating Criteria - Outside the United States (pub. 18 Apr 2016) here Rating of Public-Sector Entities – Outside the United States (pub. 22 Feb 2016) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here Solicitation Status here Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. 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