OREANDA-NEWS. Fitch Ratings has affirmed South Korea-based Shinsegae Inc.'s (Shinsegae) USD300m 2.625% guaranteed subordinated notes rating at 'A'.

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


Kookmin Bank as Guarantor: The rating reflects the unconditional and irrevocable guarantee from Kookmin Bank (A/Stable). The note is rated at the same level as Kookmin Bank's Long-Term Issuer Default Rating (IDR) as its guarantee makes the notes the bank's direct, general, unsubordinated and unconditional obligations, which will rank at least pari passu with all other present and future unsubordinated and unsecured obligations of Kookmin Bank.

Effective Maturity Date: Fitch views the first-call date as the effective maturity date. According to the terms of the notes, unless the notes have been fully redeemed before the first-call date in 2020, the first-call date would be the date when the guarantee would no longer be effective.

Fitch assumes all bond holders 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.


Since the rating on the credit enhanced bonds is based solely on Kookmin Bank's guarantee, any change in Fitch's assessment of Kookmin Bank's ratings will result in an equivalent change in the rating of this bond.

For the ratings of Kookmin Bank, the following sensitivities were outlined by Fitch in its Rating Action Commentary dated 29 May 2015:

The bank's IDRs, Viability Rating and senior debt ratings are sensitive to a change in Fitch's assumptions around Kookmin's operating environment, company profile, risk appetite, management and financial profile.

They could be upgraded if there is a sustainable, significant improvement in its foreign-currency funding/liquidity profile. However, such prospects are remote, considering the challenging operating environment and the bank's negligible foreign-currency retail deposits.

They could be downgraded if there is a significant increase in risk appetite, including rapid growth or weakened loan quality, leading to erosion of its capitalisation. However, Fitch does not expect the quality of Kookmin's loans to weaken substantially in the foreseeable future.