Research: Rating Action: Moody’s Confirms KT Corp’s A3 Ratings; outlook remains stable

Hong Kong, November 17, 2022 — Moody’s Investors Service has affirmed KT Corporation’s A3 senior unsecured ratings.

The rating outlook remains stable.

“The rating confirmation and stable outlook reflect our view that KT will maintain its strong competitive positions and healthy financial leverage over the next 1-2 years,” said Sean Hwang, assistant vice president and analyst at Moody’s.

“The steady increase in revenue from its core telecom and non-telecom businesses will offset the effects of the company’s growing cost base and partially debt-financed investments in its B2B and financial businesses,” Hwang adds.

RATINGS RATIONALE

KT’s A3 ratings reflect the company’s competitive strength as a fully integrated telecom operator with strong market shares in all major segments in Korea. The company also maintains strong liquidity and good financial flexibility, supported by its substantial liquidity.

These factors offset KT’s modest profitability compared to its similarly rated telecom peers, due to continued intense competition in the Korean telecom market, with a history of high marketing spend.

Moody’s expects the company’s revenue to grow around 3% annually over the next 1-2 years, from KRW 25.7 trillion in the 12 months to September 2022, supported by growing number of subscribers and average revenue per user in its wireless and multimedia businesses, as well as increasing non-telecom revenue.

This revenue growth is expected to offset increases in KT’s general operating expenses, such as salaries, and therefore keep its adjusted annual EBITDA stable at around KRW5.7 trillion-KRW5.8 trillion over the 1 to 2 years. next 2 years. KT’s Adjusted EBITDA in the 12 months ended September 2022 was slightly below KRW 6 trillion, including approximately KRW 0.3 trillion of one-time gains related to asset sales of the real estate subsidiary.

On the other hand, Moody’s expects KT’s reported consolidated debt (including lease debt) to remain broadly stable at KRW 11.6 trillion as of September 30, 2022. Moody’s expects the subsidiary KT’s financial institution, BC Card Co., Ltd., continues to expand its debt lending business, but its impact will likely be offset by KT’s use of excess cash and short-term investments to repay its incoming debt. due.

As a result, Moody’s expects KT’s Adjusted Debt/EBITDA to remain broadly flat at 2.2x, similar to the level for the 12 months ended September 2022. This projected level of leverage, coupled with the company’s ample cash , positions KT appropriately for his A3 rating.

KT’s adjusted debt/EBITDA fell from 2.0x in 2021 to 2.2x in September 2022 as the company’s consolidated debt increased to support its B2B investments, such as cloud, and the growth of its financial assets. BC Card. The weakening Korean Won also increased the reported value of KT’s foreign currency debt.

Environmental, social and governance (ESG) factors have an overall low impact on KT’s credit quality (CIS-2), reflecting the company’s low exposure to environmental risk and Moody’s view that KT’s good governance practices, as reflected in its conservative financial strategy, offset its moderately negative social risk exposure. KT’s exposure to social risks includes data security risks, occasional regulatory pressure on telecom charges, competition for talent in growing industries, and Korea’s long-term population decline. .

FACTORS THAT MAY LEAD TO IMPROVEMENT OR DEGRADATION OF RATINGS

Moody’s could upgrade if KT maintains revenue growth and improves margins; competitive and regulatory pressures in the Korean telecommunications market are waning; and KT maintains its prudent investment and financial policies. These developments could result in an adjusted debt/EBITDA below 1.8x or an adjusted EBITDA margin above 25% on a sustainable basis.

Moody’s could downgrade the rating if earnings from KT’s core telecommunications business decline due to an erosion of its market position, or due to intense competition or regulatory changes; or the company’s leverage increases due to aggressive debt-financed investments or shareholder distributions such that its debt/Adjusted EBITDA exceeds 2.5x and its Adjusted EBITDA margin falls below 20% constantly.

In addition, KT’s rating could come under downward pressure if its ability to continue its phone securitization program, as currently structured, becomes constrained as related borrowings are brought back to its balance sheet, which which would weaken its leverage.

The main methodology used in these ratings was that of telecommunications service providers published in September 2022 and available on https://ratings.moodys.com/api/rmc-documents/393391. Otherwise, please see the Scoring Methodologies page on https://ratings.moodys.com for a copy of this methodology.

KT Corporation is Korea’s largest integrated telecommunications service provider by revenue. It focuses on fixed telephony, broadband Internet access, data communication, mobile telecommunications, pay TV, leased line and satellite, as well as system and network integration services.

REGULATORY INFORMATION

For details on key rating assumptions and Moody’s sensitivity analysis, see the Methodological Assumptions and Sensitivity to Assumptions sections in the Disclosure Form. Moody’s rating symbols and definitions can be found at https://ratings.moodys.com/rating-definitions.

For ratings issued on a program, series, category/class of debt or security, this announcement provides certain regulatory information regarding each rating of a subsequently issued bond or note of the same series, category/class of debt, security or under a program for which ratings are derived exclusively from existing ratings in accordance with Moody’s rating practices. For ratings issued on a media provider, this announcement provides certain regulatory information relating to the credit rating action on the media provider and each particular credit rating action for securities whose credit ratings are derived from the support provider’s credit rating. For the provisional ratings, this press release provides certain regulatory information relating to the provisional rating assigned, and to a final rating that may be assigned after the final issuance of the debt, in each case where the structure and conditions of the transaction n have not changed prior to the final rating being assigned in a way that would have affected the rating. For more information, please see the issuer/transaction page of the respective issuer at https://ratings.moodys.com.

For all relevant securities or rated entities receiving direct credit support from the lead entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action , the associated regulatory information will be that of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to the jurisdiction: Ancillary services, Disclosures to the rated entity, Disclosures to be provided by the rated entity.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued without modification as a result of such disclosure.

These notes are solicited. Please refer to Moody’s Policy for the Designation and Assignment of Unsolicited Credit Ratings available on its website. https://ratings.moodys.com.

Moody’s considers a rated entity or its agent(s) to participate when they have an overall relationship with Moody’s. Unless otherwise specified in the Regulatory Disclosures as a non-participating entity, the rated entity is a participant and the rated entity or its agent(s) generally provide information to Moody’s for the purposes of its rating process. Please refer to https://ratings.moodys.com for regulatory information for each credit rating action, displayed on the issuer/deal page, and for Moody’s policy on naming nonparticipating rated entities, displayed on https://ratings.moodys.com.

The regulatory information contained in this press release applies to the credit rating and, if applicable, the outlook or rating revision relating thereto.

Moody’s general principles for assessing environmental, social and governance (ESG) risks in our credit analysis are available at https://ratings.moodys.com/documents/PBC_1288235.

The worldwide credit rating on this credit rating announcement was issued by one of Moody’s affiliates outside the EU and is approved by Moody’s Deutschland GmbH, An der Welle 5, Frankfurt am Main. -le-Main 60322, Germany, in accordance with Article 4(3) of Regulation (EC) No 1060/2009 on credit rating agencies. Further information on the EU approval status and the Moody’s office that issued the credit rating can be found at https://ratings.moodys.com.

The worldwide credit rating on this credit rating announcement has been issued by one of Moody’s affiliates outside the UK and is approved by Moody’s Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the United Kingdom. . Further information on the UK endorsement status and the Moody’s office that issued the credit rating can be found at https://ratings.moodys.com.

Please see https://ratings.moodys.com for any updates on changes to the lead rating analyst and Moody’s legal entity that issued the rating.

Please see the issuer/transaction page at https://ratings.moodys.com for additional regulatory information for each credit rating.

The first name below is the primary rating analyst for this credit rating and the last name below is the person primarily responsible for approving this credit rating.

Sean Hwang
Assistant Vice President – Analyst
Corporate Finance Group
Moody’s Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queens Road
Hongkong,
China (Hong Kong SAR)
JOURNALISTS: 852 3758 1350
Customer Service: 852 3551 3077

Chris Park
Associate General Manager
Corporate Finance Group
JOURNALISTS: 852 3758 1350
Customer Service: 852 3551 3077

Release Office:
Moody’s Investors Service Hong Kong Ltd.
24/F One Pacific Place
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Customer Service: 852 3551 3077

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