Fitch Affirms SHINSEGAE's USD Guaranteed Notes at 'A'

Shinsegae

27/02/2019 08:06

(The following statement was released by the rating agency)


Fitch Ratings-Hong Kong-February 27: 

Fitch Ratings has affirmed the rating of South Korea-based SHINSEGAE Inc.'s 
(Shinsegae) USD300 million 2.625% guaranteed subordinated notes at 'A'.

The rating reflects the credit enhancement provided to investors by the 
guarantee from Kookmin Bank (KB, A/Stable). Fitch considers the first-call date 
when the guarantee would terminate as the effective maturity date of the 
securities.

Key Rating Drivers

KBas Guarantor: The rating reflects the unconditional and irrevocable guarantee 
from KB. The notes arerated at the same level as KB's Long-Term Issuer Default 
Rating (IDR), as its guarantee makes the notes the bank's direct, general, 
unsubordinated and unconditional obligations, which rank at least pari passu 
with all its other present and future unsubordinated and unsecured obligations.

Effective Maturity Date: Fitch views the first-call date as the effective 
maturity date. Under the noteterms, unless the notes have been fully redeemed 
before the first-call date in May 2020, the first-call date willbe the date when 
the guarantee isno longer effective. Fitch assumes all bondholders will execute 
the "no call put right" of the notes on the first call date due to the 
termination of guarantee. The "no call put right" states that if the issuer 
elects not to redeem the notes on the first call date, each holder has the right 
to sell the note in whole to the guarantor.

Shinsegae's Credit Not Considered: Shinsegae's standalone credit strength is not 
a consideration in the instrument rating, as the guarantee remains in force even 
if Shinsegae is declared bankrupt.

Derivation Summary

Key Assumptions

Fitch's Key Assumptions Within Our Case for the Issuer

-  15.0% revenue growth in 2019 moderating to 5.0% in 2020-2021 (2018: 33.8%)

-  Stable EBITDA margin of15.0% in 2019-2021 (2017: 15.9%, 2018e: 14.7%)

-  Capex at 10.0% of revenue in 2019-2021 (2017: 10.6%)

RATING SENSITIVITIES

Any change in Fitch's assessment of KB's ratings will result in an equivalent 
change in the rating of thecredit-enhanced notes, since the rating on the notes 
is based solely on KB's guarantee.

For the ratings of KB, the following sensitivities were outlined by Fitch in its 
Rating Action Commentary dated 10 May 2018:

IDRS, VIABILITY RATING AND SENIOR DEBT

The bank's IDRs, Viability Rating and senior debt ratings are sensitive to a 
change in Fitch's assumptions about Kookmin Bank's company profile, risk 
appetite and financial profile. The ratings could be upgraded if there is a 
sustainable and significant improvement in the bank's financial strength and 
company profile.

The ratings could be downgraded if there is a significant increase in the bank's 
risk appetite, including rapid asset growth or weakened loan quality, leading to 
erosion of its capitalisation. Downgrade action could also be triggered by a 
substantial weakening in the parent's consolidated risk profile or double 
leverage ratio, potentially due to a large non-bank subsidiary acquisition, if 
this significantly increases the bank's dividend burden.

The downside to the IDR would be limited to one notch, as the bank's Support 
Rating Floor is 'A-'.

SUPPORT RATING AND SUPPORT RATING FLOOR

The Support Rating and Support Rating Floor are sensitive to any change in 
Fitch's assumptions about the propensity or ability of the Korean authorities to 
provide timely support to the bank. This might arise if there is a change in the 
authorities' ability to provide support.

Furthermore, global regulatory initiatives aimed at reducing implicit government 
support available to banks may cause downward pressure on the ratings. The local 
regulator may revise its resolution framework to add a bail-in feature. However, 
it remains to be seen how strong the language will be and how feasible it will 
be to enforce a bail-in in practice. The timeline for this change remains 
unclear; the revision has been delayed since late 2016.

Liquidity and Debt Structure

Liquidity Adequate: Shinsegae had KRW353 billion in cash and cash equivalents 
and KRW1.3 trillion in debt maturing within 12 months at end-2018. We expect the 
company to successfully refinance its debt in light ofthe strong banking 
relationships and multiple funding channels.

SHINSEGAE Inc.

----subordinated; Long Term Rating; Affirmed; A

Contacts: 

Primary Rating Analyst

Cathy Chao, 

Director

+852 2263 9967

Fitch (Hong Kong) Limited

19/F Man Yee Building 60-68 Des Voeux Road Central

Hong Kong

Secondary Rating Analyst

Jeong Min Pak, 

Senior Director

+822 3278 8360

Committee Chairperson

Laura Zhai, 

Senior Director

+852 2263 9974

 

Media Relations: Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: 
wailun.wan@thefitchgroup.com.

Additional information is available on www.fitchratings.com

Applicable Criteria 

Corporate Hybrids Treatment and Notching Criteria (pub. 09 Nov 2018)

https://www.fitchratings.com/site/re/10051058

Corporate Rating Criteria (pub. 19 Feb 2019)

https://www.fitchratings.com/site/re/10062582

Sector Navigators (pub. 23 Mar 2018)

https://www.fitchratings.com/site/re/10023790

Additional Disclosures 

Dodd-Frank Rating Information Disclosure Form 

https://www.fitchratings.com/site/dodd-frank-disclosure/10064557

Solicitation Status 

https://www.fitchratings.com/site/pr/10064557#solicitation

Endorsement Policy 

https://www.fitchratings.com/regulatory

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