- Ratings Services
- Issuer Ratings
Issuer Ratings are opinions of the ability of rated entities – corporate entities including financial institutions and government-related entities; corporations and foundations such as educational institutions; and sovereign and sub-sovereign entities - to honor senior unsecured financial obligations and contracts, using an established ranking system of rating categories.
Issuer Ratings are not premised on issuance of corporate bonds, and therefore, there is no restriction on the entities that can benefit from Issuer Ratings. Issuer Ratings can be utilized by a wide range of entities to gauge their own credit standing or for diverse purposes including public relations, screening of suppliers to the Public Procurement Service, and screening of constructors to be exempt from requirement of payment guarantees.
Issuer Ratings are classified into New Ratings and Surveillance – Annual Ratings and Reviews on Credit Event.
- New Ratings : A New Rating is initial assignment of rating based on the latest financial statements and on the issuer’s ability to repay senior unsecured debts.
- Annual Ratings : After the New Rating, an Annual Rating is conducted once a year while the Issuer Ratings remains valid. It is conducted based on the latest financial statements incorporating changes in the rated entity’s financial status.
- Reviews on Credit Event : A Review on Credit Event is conducted during the valid period following initial rating assignment whenever there is an event that has significant impact on credit quality or when such an event is expected. Watchlist system is also managed through Reviews on Credit Event.
Issuer Ratings use the same rating scale and definitions as unsecured corporate bond ratings. The scale is composed of 10 broad rating categories from AAA to D that indicate different levels of debt service capacity. AAA through BBB ratings are classified as investment grade, which indicates adequate debt service capacity, whereas BB through C ratings are classified as speculative grade, which indicates substantial vulnerability to changes in the external environment.
| AAA | An ‘AAA’ rating indicates the strongest capacity for timely repayment. |
|---|---|
| AA | An ‘AA’ rating indicates very strong capacity for timely repayment. This capacity may, nevertheless, be slightly inferior than is the case for the highest rating category. |
| A | An ‘A’ rating indicates strong capacity for timely repayment. This capacity may, nevertheless, be more vulnerable to adverse changes in circumstances or in economic conditions than is the case for higher rating categories. |
| BBB | A ‘BBB’ rating indicates that capacity for timely repayment is adequate, but adverse changes in circumstances and in economic conditions are more likely to impair this capacity. |
| BB | A ‘BB’ rating indicates that the capacity for timely repayment is currently adequate, but that there are some speculative characteristics that make the repayment uncertain over time. |
| B | A ‘B’ rating indicates lack of adequate capacity for repayment and speculative characteristics. Interest payment in time of unfavorable economic conditions is uncertain. |
| CCC | A ‘CCC’ rating indicates lack of capacity for even current repayment and high risk of default. |
| CC | A ‘CC’ rating indicates greater uncertainties than higher ratings. |
| C | A ‘C’ rating indicates high credit risk and lack of capacity for timely repayment. |
| D | A ‘D’ rating indicates insolvency. |
※ ‘+’ or ‘-’ modifier can be attached to ratings through AA to B to differentiate ratings within broader rating categories.
Watchlist
Korea Investors Service introduced Watchlist system on November 1, 1998, which was the first among Korean credit rating agencies. Watchlist is used to indicate that a rating is placed under review for possible change to incorporate changes in factors that affect the issuer’s credit quality.
Global rating agencies, including Moody’s Investors Service, have used the Watchlist as an important part of their ratings processs to meet investors’ needs for timely rating updates.
A rating may be put on KIS Watchlist for possible upgrade, downgrade, or occasionally with direction uncertain along with the rationale behind such Watchlist placements in order to provide investors with an indication of the likely direction.
- Possible Upgrade : When there are factors that warrant potential rating upgrade
- Possible Downgrade : When there factors that warrant potential rating downgrade
- Direction Uncertain : When there are factors that warrant potential rating change but the direction is unclear
Outlook
KIS rating outlook, introduced on September 1, 2002, is an opinion regarding the likely direction of a rating over the medium term.
Managed separately from rating category or notch, a rating outlook serves as a supplementary indicator to inform the investors of the likely movement in the credit rating. It indicates the direction in which a rating may move over a medium-term horizon of generally two years based on key rating factors that might affect credit rating.
KIS assigns rating outlook only to long-term debt instruments, such as corporate bonds (CP, ABS, other debt instruments currently in default, or subject to corporate workout programs and the Corporate Restructuring Promotion Act excluded). Also, it does not assign outlook to a rating placed on the Watchlist.
- Positive : The rating may be revised upwards over the medium term reflecting key rating factors that might affect the credit quality of individual debt instruments as of rating assignment date.
- Stable : The rating may remain static over the medium term reflecting key rating factors that might affect the credit quality of individual debt instruments as of rating assignment date.
- Negative : The rating may be revised downwards over the medium term reflecting key rating factors that might affect the credit quality of individual debt instruments as of rating assignment date.
- Developing : Faced with considerable uncertainty about future conditions, the direction of a future rating is uncertain over the medium term reflecting key rating factors that might affect the credit quality of individual debt instruments as of rating assignment date.
Issuer Ratings are valid for one year from the date the ratings are assigned.
Issuer Ratings are disclosed through various channels including KIS webpage, KOSCOM, Korea Stock Exchange, Korea Financial Investment Association (KOFIA), Bloomberg, Reuters, Yonhap News, major institutional investors and media.
