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Hong Kong, March 22, 2023 — Moody’s Investors Service has assigned a rating of Aa2 to the proposed senior unsecured USD notes to be issued by Korea National Oil Corporation (KNOC, Aa2 stable).
The notes will be issued under KNOC’s $12 billion global medium-term note (MTN) program, which is rated (P)Aa2.
The outlook on KNOC is stable.
KNOC plans to use the proceeds mainly for general corporate purposes.
RATINGS RATIONALE
"The Aa2 rating primarily reflects our assessment of the very high likelihood of KNOC receiving extraordinary support from the Government of Korea" says Wan Hee Yoo, a Moody’s Vice President and Senior Credit Officer.
Government support is the predominant rating driver for KNOC, under Moody’s Joint Default Analysis for government-related issuers (GRIs). This view is based on the Korean government’s very high willingness and strong ability to provide support to KNOC.
The government’s very high willingness to support KNOC reflects (1) the company’s strategic importance to the economy, considering its policy role in securing national energy resources, (2) the government’s low tolerance for reputational and contagion risks that could arise from a default, (3) the government’s 100% ownership of KNOC and the company’s low privatization risk, and (4) the high level of government supervision of the company.
This support assumption also factors in the government’s long record of adopting measures to prevent GRIs from defaulting, as well as maintaining transparent and predictable policies.
The very high likelihood that the government will provide timely support, if and when needed, means that KNOC’s credit quality will remain closely linked to that of the government, despite the company’s moderate standalone credit profile, as reflected in its Baseline Credit Assessment (BCA) of b1.
The government’s strong ability to provide support to KNOC is indicated by the sovereign’s ample financial reserves, as reflected in its Aa2 rating.
KNOC’s very high dependence on the Government of Korea is based on Moody’s assessment that KNOC’s credit quality is highly correlated with that of the government, given the close operational and financial links between the company and the government.
KNOC’s BCA of b1 primarily considers the company’s improved but still-very-weak financial profile and the inherently risky business profile associated with its upstream exploration and production activities. These factors are counterbalanced by the company’s continued strong access to debt markets.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
The stable outlook is in line with the stable outlook on Korea’s sovereign rating, and reflects Moody’s expectation that KNOC’s strategic importance to and the strong support from the government, if and when needed, will remain intact at least over the next 2-3 years.
An upgrade of Korea’s sovereign rating could trigger an upgrade of KNOC’s ratings.
A downgrade of Korea’s sovereign rating will result in a downgrade of KNOC’s ratings. In addition, Moody’s would review KNOC’s ratings in the event of any significant adverse changes in the company’s relationship with the government and its policy roles.
The methodologies used in these ratings were Independent Exploration and Production published in December 2022 and available at https://ratings.moodys.com/api/rmc-documents/396736, and Government-Related Issuers Methodology published in February 2020 and available at https://ratings.moodys.com/api/rmc-documents/64864. Alternatively, please see the Rating Methodologies page on https://ratings.moodys.com for a copy of these methodologies.
Established in 1979, Korea National Oil Corporation is a 100% government-owned exploration and production company. It had an average daily oil and gas production of around 139 thousand barrels of oil equivalent (boe) in 2022 and proved reserves of around 420 million boe as of the end of 2022. The company is mainly engaged in the exploration and development of oil and gas fields and in oil stockpiling for strategic purposes.
REGULATORY DISCLOSURES
For further specification of Moody’s key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody’s Rating Symbols and Definitions can be found on https://ratings.moodys.com/rating-definitions.
For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody’s rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider’s credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the issuer/deal page for the respective issuer on https://ratings.moodys.com.
For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.
The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.
These ratings are solicited. Please refer to Moody’s Policy for Designating and Assigning Unsolicited Credit Ratings available on its website https://ratings.moodys.com.
Moody’s considers a rated entity or its agent(s) to be participating when it maintains an overall relationship with Moody’s. Unless noted in the Regulatory Disclosures as a Non-Participating Entity, the rated entity is participating and the rated entity or its agent(s) generally provides Moody’s with information for the purposes of its ratings process. Please refer to https://ratings.moodys.com for the Regulatory Disclosures for each credit rating action, shown on the issuer/deal page, and for Moody’s Policy for Designating Non-Participating Rated Entities, shown on https://ratings.moodys.com.
Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.
Moody’s general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://ratings.moodys.com/documents/PBC_1288235.
The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody’s affiliates outside the EU and is endorsed by Moody’s Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody’s office that issued the credit rating is available on https://ratings.moodys.com.
The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody’s affiliates outside the UK and is endorsed by Moody’s Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody’s office that issued the credit rating is available on https://ratings.moodys.com.
Please see https://ratings.moodys.com for any updates on changes to the lead rating analyst and to the Moody’s legal entity that has issued the rating.
Please see the issuer/deal page on https://ratings.moodys.com for additional regulatory disclosures for each credit rating.
The first name below is the lead rating analyst for this Credit Rating and the last name below is the person primarily responsible for approving this Credit Rating.
Wan Hee Yoo
VP – Senior Credit Officer
Corporate Finance Group
Moody’s Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong,
China (Hong Kong S.A.R.)
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
Chris Park
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
Releasing Office:
Moody’s Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong,
China (Hong Kong S.A.R.)
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
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