Moody's rates Korea Water bond A3

Moody's Investor Services said it assigned an A3 issuer rating to Korea Water Resources Corp. and at the same time assigned an A3 senior unsecured rating to the corporation's proposed U.S. dollar bond issuance.

The outlook is stable, in line with the stable look for Korea's A3 sovereign rating.

Moody's said the A3 rating reflects Korea Water's key credit strengths: 1) strategic role in implementing government policy for the development and management of water resources; 2) close relationship with the Korean government as reflected in the state's 99.9% ownership level; 3) stability of demand for water and continuous increases in water tariffs; 4) hydro-power generation continues to benefit from sustained growth in electricity demand; 5) projected solid financial position; and 6) sound liquidity profile.

At the same time, Moody's said the rating reflects key credit challenges: 1) negative free cash flow position over the medium term due to a sizeable capex plan which requires debt financing; 2) cash flow from development of industrial sites is relatively volatile and less predictable compared to that from its core water resources and supply businesses; 3) uncertain level of return from its expansion overseas and participation in the consolidation of the local waterworks sector; and 4) exposure to adverse currency movements.

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