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Korea Ocean Business Corporation -- Moody's assigns first-time Aa2 issuer rating to Korea Ocean Business Corporation; outlook stable

·15 min read

Rating Action: Moody's assigns first-time Aa2 issuer rating to Korea Ocean Business Corporation; outlook stableGlobal Credit Research - 31 Mar 2021Hong Kong, March 31, 2021 -- Moody's Investors Service has assigned an Aa2 foreign currency long-term issuer rating and P-1 short-term issuer rating to Korea Ocean Business Corporation (KOBC).KOBC's outlook is stable.RATINGS RATIONALEKOBC's Aa2 foreign-currency long-term issuer rating is at the same level as the Government of Korea's Aa2 rating. The very close alignment of interest and objectives with a clear public policy mandate underpin its rating on par with the government. Moody's rates KOBC using the Government-Related Issuers rating methodology.KOBC provides financial and policy support to enhance competitiveness of the domestic maritime transportation industry. Its main business areas include (1) sales and lease back financing for local shipping companies to secure vessels at lower interest rates, (2) providing debt guarantees to enhance accessibility for shipping finance, (3) support the domestic shipping companies' transition to eco-friendly vessels, and (4) providing maritime research and consulting services.KOBC's Aa2 rating reflects (1) the government's de facto full ownership with 98% ultimate stake; (2) Article 12 of the Korea Ocean Business Corporation Act (KOBC Act), that holds the government responsible for its solvency; and (3) KOBC's close affiliation with the government given its policy mandate to support Korea's maritime transportation industry.Moody's believes that the probability of support from the Government of Korea is near certain based on: (1) government's direct influence and supervision of KOBC's operations through the appointment of board members and management; (2) its status as public institution subject to periodic financial oversight and budget control by the Ministry of Finance; (3) the importance of the maritime transportation industry to Korea given the industry is responsible for 99.7% of all import and export volumes; and (4) Moody's view that KOBC's default would substantially damage the government's reputation and impair its ability to achieve its policy objectives.KOBC has close ties with the Ministry of Oceans and Fisheries to promote Korea's maritime transportation policy, while its legal status is governed by the KOBC Act and the Management of Public Agencies Act. For instance, Article 5 of the KOBC Act stipulates that its capital shall be invested by the government. Also, Article 14 stipulates that the institution must receive approval from the Ministry of Oceans and Fisheries to issue any debt securities, as well as to appoint the CEO and external board members.KOBC's earnings are volatile and highly correlated with the shipping industry's business cycle. However, this risk is mitigated by its government-related entity status and Article 12 that stipulates the government may offset any losses incurred by KOBC. As such, Moody's views that the government will provide timely support to offset any annual net losses if KOBC's reserves are insufficient.Moody's regards KOBC's government ownership and solid corporate governance as a governance consideration under our environmental, social and governance (ESG) framework, given its implications for the company's organizational structure, and management credibility and track record. Today's action reflects the effect governance factors have on KOBC's credit quality and support for its capitalization.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSWHAT COULD CHANGE THE RATING UPKOBC's rating is likely to be upgraded if Korea's sovereign rating is upgraded.WHAT COULD CHANGE THE RATING DOWNKOBC's rating is likely to be downgraded if (1) Korea's sovereign rating is downgraded; (2) there is evidence of weakening government support for KOBC; or (3) KOBC's strategic role and importance to the Government of Korea weaken.The principal methodology used in these ratings was Government-Related Issuers Methodology published in February 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1186207. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.Korea Ocean Business Corporation (KOBC) was established in July 2018 by the Korean government to promote the competitiveness of the country's maritime transportation industry. KOBC was formed from the integration of three separate public institutions -- Korea Maritime Guarantee Insurance, Korea Shipping and Maritime Transportation, and Maritime Exchange Information Center -- to provide more efficient support for the industry. KOBC engages in three distinct business areas that include providing investment, guarantee, and policy support to the shipping industry.REGULATORY DISCLOSURESFor 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 at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.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 ratings tab on the issuer/entity page for the respective issuer on www.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 www.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 www.moodys.com for the Regulatory Disclosures for each credit rating action under the ratings tab on the issuer/entity page and for details of Moody's Policy for Designating Non-Participating Rated Entities.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://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.At least one ESG consideration was material to the credit rating action(s) announced and described above.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 www.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 www.moodys.com.Please see www.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 ratings tab on the issuer/entity page on www.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. 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