As Meta and NVIDIA Move In, Korean Credit Raters Face a Test on 'Big Tech Ratings' [fn Market Watch]

[Financial News] As domestic securitization backed by credit default swaps (CDS) on U.S. big tech firms moves forward, starting with Meta Platforms and now NVIDIA Corporation, Korean credit rating agencies are being put to the test on their ability to assess big tech credit risk. The first point of interest is how Meta, which is regarded globally as having credit quality comparable to Samsung Electronics, will be rated in Korea.■With Meta followed by NVIDIA, big tech assessment enters full swing According to investment bank and credit rating industry sources on the 30th, domestic securities firms are pushing ahead with securitization deals using CDS on U.S. big tech companies, including Meta Platforms. The first transaction using Meta CDS is being arranged at a scale of 10 billion to 20 billion won, while structured products based on NVIDIA Corporation's credit risk are also under review. Related credit rating results are expected to become clear as early as late September.
As the credit risk of overseas big tech firms enters won-denominated investment products in Korea, a new area of assessment is opening up for domestic rating agencies. To repackage CDS traded overseas into won-denominated securitized securities through special purpose companies (SPCs), evaluators must assess not only the reference entity's credit risk but also the overall transaction structure.
One of the first tests is Meta Platforms. The company holds top-tier ratings of 'AA-' from Standard & Poor's (S&P) and 'Aa3' from Moody's Corporation.
The gap is not large even when compared with Samsung Electronics. Samsung Electronics is rated 'AA-' by S&P, the same as Meta Platforms, and 'Aa2' by Moody's Corporation, one notch higher than Meta Platforms. However, Samsung Electronics does not issue corporate bonds in Korea, so it has no domestic corporate bond rating from local agencies.
SK hynix, which has ratings from both domestic and overseas agencies, provides another benchmark. SK hynix is rated 'BBB+' by S&P and 'A3' by Moody's Corporation, while all three Korean rating agencies — Korea Ratings Corporation, Korea Investors Service (KIS), and NICE Investors Service — assign it 'AA+'. Because global and domestic rating systems and methodologies differ, Meta Platforms' credit quality in Korea cannot be simply converted from its overseas ratings alone.■Only five companies in Korea hold AAA ratings... Will Meta receive the top grade?The key question is whether Meta Platforms' credit risk can be rated at the domestic top level of 'AAA'. Among private nonfinancial companies in Korea, only five — SK Telecom, KT Corporation, KT&G Corporation, Hyundai Motor Company, and Kia Corporation — maintain AAA corporate bond ratings. That shows how difficult it is for private companies to clear the AAA threshold in Korea's corporate bond market.
Meta Platforms' strong business competitiveness and cash-generating ability support its high credit standing. Based on Facebook, Instagram, and WhatsApp, the company has secured a firm position in the global digital advertising market.
On the other hand, expanding investment in artificial intelligence (AI) infrastructure is a factor to watch. Capital expenditure on data centers and computing infrastructure is rising sharply, and external financing such as bond issuance is also increasing. The key issue is how Korean rating agencies assess Meta Platforms' business stability, cash generation, and the financial burden from its growing AI investment.
Even if Meta Platforms' credit risk is rated at the 'AAA' level in Korea, that does not automatically mean the same rating will be assigned to CDS securitized securities. That is because securitized securities reflect not only the reference entity's credit risk, but also transaction risks such as the CDS counterparty, collateral assets, and the SPC payment structure. If structural risks are added, the rating may be lower than the reference entity's credit quality. But if counterparty risk is controlled and sufficient credit enhancement is in place, the same level of rating is also possible. In the end, the final rating depends on the structure of each individual deal.

[email protected] Kim Hyun-jung, Kim Kyung-ah Reporter