S&P Assigns 'AA' to Korea National Oil Corporation's Unsecured Dollar-Denominated Senior Bonds... Cash Flow Declines

"Overseas Resource Development Losses... Debt-to-EBITDA Ratio Worsens from 8.6x Last Year to 10-30x This Year and Next"

[Asia Economy Reporter Moon Chaeseok] The international credit rating agency Standard & Poor's (S&P) announced on the 21st that it has assigned an 'AA' long-term bond rating to the U.S. dollar-denominated senior unsecured bonds being prepared for issuance by Korea National Oil Corporation (AA/Stable).

The Oil Corporation plans to use the funds raised from this bond issuance for general corporate purposes, including repayment of borrowings. The assigned rating may vary depending on the final issuance terms.

S&P assigned the same rating to the senior unsecured bonds issued by the Oil Corporation as the institution's issuer credit rating, judging that the key risks in the capital structure are low.

As of the end of June, the Oil Corporation's own unsecured borrowings amounted to approximately KRW 11.9 trillion. Subsidiaries' borrowings totaled about KRW 3.1 trillion.

The Oil Corporation's proportion of senior debt is about 20%, which is lower than S&P's rating adjustment benchmark of 50%.

Accordingly, S&P assigned the Oil Corporation the same rating as South Korea's sovereign credit rating of 'AA/Stable,' evaluating that the government is almost certain to provide special support if the Oil Corporation faces financial difficulties.

The Oil Corporation is a policy institution wholly owned by the government. It exclusively manages the nation's strategic oil reserves and plays a key role in improving the domestic oil resource self-sufficiency level.

However, S&P expects the Oil Corporation's operating cash flow to decline significantly.

They noted that the low oil price trend continues, and the corporation is likely to incur increased borrowings due to large operating losses in overseas resource development projects.

The Oil Corporation's debt-to-EBITDA (earnings before interest, taxes, depreciation, and amortization) ratio is estimated to worsen from 8.6 times last year to between 10 and 30 times over this year and next year.

Nonetheless, since the corporation is assigned the same rating as South Korea's sovereign credit rating, S&P judged that the deterioration in financial indicators will not affect the corporation's credit rating.

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