Moody's Expects Negative Impact on Korail and DoGong Credit Ratings Due to COVID-19 Spread

On the 4th, as the number of confirmed cases of the novel coronavirus infection increases, quarantine officials are disinfecting the inside and surroundings of KTX train cars at the Seoul Station platform to prevent the spread of COVID-19. Photo by Jinhyung Kang aymsdream@

[Asia Economy Reporter Chunhee Lee] The international credit rating agency Moody's stated on the 11th that the spread of the novel coronavirus infection (COVID-19) has led to a decrease in traffic volume, which will negatively impact the credit ratings of domestic transportation companies such as Korea Railroad Corporation (KORAIL) and Korea Expressway Corporation.

Mic Kang, Vice President and Senior Analyst at Moody's, explained, "As the spread of COVID-19 causes people to reduce travel for commuting, social activities, and business trips, traffic volume is decreasing, and transportation companies' profits are expected to decline." Moody's predicted that the extent of the negative impact from COVID-19 will depend on how long the situation lasts and the resulting changes in public sentiment.

Since mid-last month, Moody's estimated that the average traffic volume of KORAIL (Aa2, stable) high-speed rail and Korea Expressway Corporation (Aa2, stable) highways decreased by about 20% compared to the same period last year. According to Moody's base scenario, on an annual basis this year, the high-speed rail traffic volume of KORAIL and SR (A1, stable) and the highway traffic volume of Korea Expressway Corporation are expected to decrease by 10-12% and 6-7%, respectively, compared to the previous year. However, this scenario anticipates that economic activities will recover from the second half of this year, supported by global quarantine efforts.

Under the negative scenario, high-speed rail and highway traffic volumes are predicted to decrease by approximately 35% and 26%, respectively. The negative scenario assumes an increased possibility of a global recession.

Moody's expects that KORAIL will be relatively more affected by the spread of COVID-19 due to already weak credit indicators before the outbreak. In both the base and negative scenarios, KORAIL's adjusted debt to operating funds (FFO - Funds From Operations) interest coverage ratio is expected to be below 1.0 times, which is a level weaker than KORAIL's standalone credit assessment (BCA) of 'b1.'

Moody's predicted that SR and Korea Expressway Corporation's standalone credit ratings could be tested depending on future developments. In the base scenario, credit indicators are expected to be near the lower boundary of the current standalone credit rating range, while in the negative scenario, they are expected to fall below that level.

However, Moody's expects that profits of KORAIL, SR, and Korea Expressway Corporation will recover once COVID-19 ends. Additionally, Moody's evaluated positively the fact that KORAIL and Korea Expressway Corporation are infrastructure companies with majority government ownership, which increases the likelihood of government support in emergencies, reflecting positively on their credit ratings. Moody's also positively factored in SR's close relationship with KORAIL and KORAIL's equity stake, indicating potential support from KORAIL and the government in its credit rating.

This content was produced with the assistance of AI translation services.