Subordinated Tranche Of Woori Bank GMTN Program And Basel III Tier 2 Subordinated Bonds Upgraded To #BBB-#

Stocks and Financial Services Press Releases Friday September 26, 2014 17:28
HONG KONG--26 Sep--Standard & Poor's

HONG KONG (Standard & Poor's) Sept. 26, 2014--Standard & Poor's RatingsServices today said that it has raised to 'BBB-' from 'BB+' its programratings on Woori Bank's (Woori; A-/Stable/A-2) subordinated tranche of US$7billion global medium-term note (GMTN) program and its issue rating on thebank's US$1 billion Basel III Tier 2 subordinated bonds with a fixed couponrate of 4.75%, due April 30, 2024. Woori had drawn down the US$ 1 billionbonds from the US$7 billion GMTN program on April 30, 2014.

Our upgrade primarily reflects our view that these Basel III instruments nowface a lower default risk after Korea's financial regulator recently changedits stance on the nonviability event trigger. Due to the change, we now thinkthat a nonviability event would likely be triggered only if the issuer falls

into a negative net-worth position as seen in Hana Bank's proposed bondissuance on Sept. 25 (see our media release, "Hana Bank's Proposed U.S.Dollar-Denominated Subordinated Bonds Rated 'BBB'," published Sept. 25, 2014).We also note that a nonviability event would only be triggered if a bank isdesignated as an "insolvent financial institution" pursuant to the Act onStructural Improvement of the Financial Industry.

Our 'BBB-' issue rating is now one notch below Woori's 'bbb' stand-alonecredit profile. Under our new hybrid capital criteria published on Sept. 18,2014, the notching reflects the risk related to subordination, but it nolonger reflects the risk of write-down and waiver of principal and interestpayments upon the occurrence of a nonviability event due to the change in theregulator's stance on the nonviability event trigger. In our view, the changeshows that the regulator has become more willing to support banks andsubordinated creditors.

However, based on the existing terms and conditions of the Woori bonds and thesubordinated tranche of GMTN program that we have upgraded today, we thinknonviability could still be triggered even while Woori maintains a slightlypositive net-worth position. This is because we note that the existing termsand conditions still include the issuance of a management improvement order bythe Financial Services Commission, pursuant to Article 36 of the Regulation onSupervision of Banking Business, as another nonviability trigger.

At the same time, we think Korean banks--including Woori--will likely receiveextraordinary support from the government in a preemptive manner and at a

elatively early stage if they come under financial stress, based on thegovernment's track record. We also note that such preemptive governmentsupport would not constitute a nonviability event in Korea. These twoconditions are included in our description of exceptional cases in which we do

not reflect the risks of write-down and waiver of principal and interestpayments upon the occurrence of a nonviability event, based on paragraph 90 ofour new hybrid criteria.

Separately, we have placed under criteria observation (UCO) Woori's US$1billion 6.208% Hybrid Tier I securities with a maturity date of May 2, 2037,which are under the scope of our criteria. We are currently reviewing thesecurities for a possible rating action. We plan to complete our review beforethe end of September 2014 and announce the results to the market via a mediarelease.


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