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July 2 (Reuters) - (The following statement was released by the rating agency)
Fitch Ratings has assigned Korea Gas Corporation’s (Kogas, AA-/Stable) USD500m senior unsecured bond a final rating of ‘AA-'. The bond was issued under the company’s USD8bn global medium-term note (GMTN) programme, which is also rated ‘AA-'.
Kogas will use the net proceeds from the bond to refinance existing debt and for general corporate purposes.
The notes are rated at the same level as Kogas’s senior unsecured rating as they represent direct, unconditional, unsecured and unsubordinated obligations of the company.
The assignment of the final rating follows the completion of the bond issuance and receipt of documents conforming to the information previously received. The final rating is the same as the expected rating assigned on 23 June 2014.
Ratings Equalised with Sovereign: The ratings of Kogas are equalised with Korea’s (AA-/Stable) due to their strong strategic and operational ties. The ratings also reflect Kogas’ status as an important state-owned enterprise in the country, with a dominant position in the natural gas business through its monopoly in the wholesale gas segment and its ownership of the country’s entire gas transmission infrastructure.
Favourable Operating Environment: Fitch views the resumption of the Automated Fuel Cost Passthrough System as a credit positive for Kogas. The government indicated that Kogas could restart the system in February 2013, which would allow the company to adjust the gas tariff every two months if costs move by more than 3% in either direction. In December 2013, the company raised city gas tariffs by an average of 5.8%. We believe timely changes to charges arising from this framework will lead to more stable revenue and cash generation.
Government Equity Injection: The government has participated in Kogas’ recapitalisation and acquired KRW160bn of new shares in 4Q13. The company raised KRW710bn from new share issuance, which will likely alleviate some of its funding pressures stemming from plans to invest in overseas assets (investment in 2013: KRW2.3trn). The government’s decision to support Kogas’ equity raising reflects the company’s key role in the government’s policy of increasing national energy resources.
Standalone Credit Profile Improves: Kogas’ debt increased to KRW29.5trn in 2013 from KRW27trn in 2012. Its leverage metrics have remained high, with FFO-adjusted net leverage of 10.7x at end-2013. However, this ratio improved slightly from 10.9x at end-2012 and is expected to improve further (albeit marginally) on the back of recent recapitalisation and the tariff increase and the possible disposal of some non-core assets. The company has also recently submitted a debt reduction plan to the Ministry of Strategy and Finance that includes the sale of non-core assets. Kogas’ liquidity remains strong, underpinned by the company’s close ties with the government, which gives the company good access to banks and debt capital markets.
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, resulting in challenges to the state’s ability to provide timely and adequate support to key public-sector entities.
- 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 Kogas and the state remain intact and that the state’s ability to support key state-owned entities remains strong