[Edaily Marketin Reporter LEE GEON-EOM ] Global credit rating agency Moody’s announced on the 13th that it had assigned an “Aa2” credit rating to the U.S. dollar-denominated senior unsecured bonds to be issued by #KoreaElectricPower Corporation (KEPCO).

These bonds will be issued under KEPCO’s $11 billion global medium-term note (MTN) program (rated P-Aa2). KEPCO plans to use the proceeds to refinance existing debt and provide new funding for the development and operation of eligible green projects in accordance with its sustainable finance framework.

In determining KEPCO’s credit rating, Moody’s has applied a rating that is seven notches higher than its standalone credit assessment (BCA) of “baa3,” reflecting the strong likelihood of support from the South Korean government.

Moody’s joint default analysis for government-related issuers served as the key basis for this assessment. Based on an analysis of KEPCO’s strategic importance and the conclusion that the government would not tolerate the reputational damage and contagion risks that could arise from a KEPCO default, Moody’s assessed the likelihood of government support as “very high.”

Furthermore, reflecting KEPCO’s close ties to the government and its exposure to the same revenue base and credit risks, Moody’s assessed its dependence on the government as “very high.” The agency explained that this assessment, combined with the government’s strong capacity to provide support, resulted in a seven-notch upgrade relative to KEPCO’s standalone credit assessment.

However, Moody’s identified several credit constraints, including a history of failing to raise rates in a timely manner during periods of rising fuel costs, high debt levels resulting from large-scale capital expenditures, and exposure to environmental and safety regulations.

Moody’s projected that KEPCO’s ratio of adjusted debt to operating cash flow would decline to the 8–10% range over the next 12 to 18 months due to high energy costs. As of the end of June this year, this ratio stood at 13%.

Based on the close credit linkage between KEPCO and the South Korean government, Moody’s assigned KEPCO a rating outlook of “Stable,” the same as the country’s credit rating. If the country’s credit rating is upgraded in the future, strengthening the government’s ability to provide support, KEPCO’s rating could also be upgraded; conversely, if the country’s credit rating is downgraded, KEPCO’s rating will also be downgraded.

Moody’s stated, “KEPCO’s standalone credit assessment (BCA) could be upgraded if it significantly reduces its debt or enhances its ability to pass on costs, thereby maintaining an adjusted debt-to-operating cash flow ratio of 12% or higher throughout the energy price cycle,” and “Conversely, if debt increases significantly due to large-scale investment reliant on borrowing or insufficient cost recovery, causing that ratio to fall below 7%, the standalone credit assessment could be downgraded.”