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Fitch Affirms Korea Student Aid Foundation at 'AA-'/Stable
September 5, 2014 / 7:15 AM / 3 years ago

Fitch Affirms Korea Student Aid Foundation at 'AA-'/Stable

(The following statement was released by the rating agency) HONG KONG/BARCELONA, September 05 (Fitch) Fitch Ratings has affirmed Korea Student Aid Foundation's (KOSAF) Long-Term Issuer Default Rating (IDR) at 'AA-' and Short-Term IDR at 'F1+'. The Outlook on the IDR is Stable. KEY RATING DRIVERS KoSAF's ratings are equalised with the ratings of Korea (AA-/Stable) due to its public sector status, the state's direct guarantee for its bonds, the government's strong control over the entity and KoSAF's strategic ties with the state, which result in a strong likelihood of extraordinary state support, in case of need. Fitch has classified KoSAF as a dependent public sector entity. Fitch has applied a top-down approach in its analysis of KoSAF. The foundation is a not-for-profit quasi-government institution established in 2009 under the Korea Student Aid Foundation Act. KoSAF provides loans and scholarships to students from low- to middle-income families. The government provided 99.9% of KoSAF's contributed fund capital. The foundation's standalone credit profile is relatively weak because of its non-profit status and brief history. Higher education is a government priority and strategically important. Fitch expects strong demand for KoSAF's services as it is important in Korea's competitive society to gain access to a satisfactory career through university education. The management of the foundation is appointed and controlled by the government. Its operations and strategy are under the direct control of the Ministry of Education, while its annual budget plans and the guarantee limit for its bonds are reviewed by the Ministry of Strategy and Finance (MoSF) before submission for approval by the National Assembly. Adherence to budget plans is monitored by the MoSF. KoSAF's funding has so far come mainly from issuance of government-guaranteed Korean won-denominated bonds, mainly sold to domestic institutional investors. The National Assembly has authorised KoSAF to issue up to KRW3.2trn of government-guaranteed bonds in 2014. Fitch expects KoSAF to incur some operating losses in 2015 and beyond because it provides loans to students at interest rates below its funding cost. Nevertheless, government subsidies are likely to cover KoSAF's operating losses arising from its policy role. RATING SENSITIVITIES A positive rating action on the sovereign, in conjunction with continued strong support from the state, would lead to a similar change in KoSAF's rating. A downgrade of Korea's ratings, significant changes that result in a dilution in state ownership and public control, or evident weakening in links with the government, including the importance of the foundation's public policy role and budgeting relationship, could trigger a downgrade in KoSAF's ratings. This is because the foundation, under these circumstances, would no longer be classified as a dependent public sector entity and, therefore, no longer credit-linked to the sovereign rating. Contacts: Primary Analyst Terry Gao Director +852 2263 9972 Fitch (Hong Kong) Limited 28th Floor, Two Lippo Centre 89 Queensway, Hong Kong Secondary Analyst Fernando Mayorga Managing Director +34 93 323 8407 Committee Chairperson Raffaele Carnevale Senior Director +39 02 87 90 87 203 Media Relations: Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: wailun.wan@fitchratings.com. Additional information is available at www.fitchratings.com. Applicable criteria, 'Tax-Supported Rating Criteria', dated 14 August 2012 and 'Rating of Public Sector Entities - Outside the United States', dated 4 March 2014, are available at www.fitchratings.com. Applicable Criteria and Related Research: Rating of Public Sector Entities - Outside the United States - Effective from 4 March 2013 to 4 March 2014 here Tax-Supported Rating Criteria 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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