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Oct 23 (Reuters) - (The following statement was released by the rating agency)
Fitch Ratings has assigned Industrial Bank of Korea’s (IBK) proposed long-term senior unsecured euro-denominated notes an expected rating of ‘AA-(EXP)'. IBK is expected to issue EUR500m of five-year notes, though this is subject to change depending on the market situation.
The notes will be issued under the bank’s existing USD8bn Global Medium Term Note Programme, last updated on 29 March 2013 at the Singapore Exchange Securities Trading Limited. The proceeds from the issue will be used for the bank’s general purposes, including rolling over and/or repaying maturing foreign currency debt and other obligations. The final rating is contingent upon the receipt of final documents conforming to the information already received.
The notes are rated at the same level as IBK’s Long-Term Foreign-Currency Issuer Default Rating (IDR) as they will constitute direct, unconditional, unsecured and unsubordinated obligations of the bank. The bank’s IDR is equalised with South Korea’s sovereign rating to reflect the de facto solvency guarantee. According to Article 43 of the Industrial Bank of Korea Act, the government is responsible for any losses incurred by the bank but not covered by the bank’s reserves. IBK is 72.3%-owned by the state (68.84% directly, 1.91% through Korea Finance Corporation (AA-/Stable), and 1.55% through Export-Import Bank of Korea (AA-/Stable)).
The ratings of IBK would be directly affected by a change to South Korea’s sovereign ratings or a major change in IBK’s relationship with the government (for example, a change to the solvency guarantee under the IBK Act). Fitch does not expect any significant change to either in the foreseeable future.
IBK is one of South Korea’s policy banks. Its mandate is to provide credit to SMEs, and it focuses on small but viable manufacturing companies. Korea’s government announced a stop to the privatisation of IBK in late August 2013, affirming IBK’s importance in supplying funds to SMEs, especially when the system is under stress. That said, the government wants to reduce its stake in IBK to fund its spending plans, especially in improving social welfare.