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TEXT-S&P summary: Samchully Co. Ltd.
(The following statement was released by the rating agency)
June 15 -
Summary analysis -- Samchully Co. Ltd. ---------------------------- 15-Jun-2012
CREDIT RATING: BBB+/Negative/-- Country: Korea, Republic
Primary SIC: Gas production
Credit Rating History:
Local currency Foreign currency
26-Apr-2012 BBB+/-- BBB+/--
20-Nov-2005 A-/-- A-/--
The ratings on Korea-based energy services provider Samchully Co. Ltd. (BBB+/Negative/--) reflect its monopoly on gas distribution and retail businesses in its mandated service areas; stable profitability and cash flow from its core gas businesses, backed by the nation's cost pass-through retail gas pricing system; and stable liquefied natural gas (LNG) procurement from government-owned LNG wholesale distributor Korea Gas Corp. (KOGAS; A/Stable/A-1). Constraining factors include the company's strategy to aggressively invest in nongas businesses such as power generation and community energy services and a maturation of demand for gas in mandated service areas, where the household penetration ratio exceeds 85%.
Samchully is the largest gas distributor and retailer in Korea, covering major areas in Gyeonggi Province and the city of Incheon, with 16.4% of the market among 33 companies supplying gas to cities as of the end of 2011. Regional governments regulate the retail gas industry in each city, establishing a supportive regulatory framework that apportions a regional, city-based monopoly to each gas company.
Standard & Poor's Ratings Services takes the view that Samchully's regional monopoly and the regulated cost pass-through retail gas pricing system provide the company with stable profitability and cash flow from its core gas businesses, which accounted for more than 97% of the company's total revenue in 2011. Samchully is not exposed to risk related to fluctuations in commodity prices or foreign exchange rates. KOGAS supplies 100% of Samchully's LNG needs at a regulated wholesale price that Samchully can pass to its customers.
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