“2 trillion won capital raise despite K-ICS at 208%” ... Moody’s assigns ‘A2’ to Samsung Life’s dollar-denominated perpetual bonds [fn Market Watch]

[The Financial News] Samsung Life Insurance is pursuing the issuance of up to 2 trillion won in overseas hybrid capital securities despite having a K-ICS solvency ratio of 208%. International credit rating agency Moody’s assigned the securities a rating two notches below the insurer’s standalone credit profile. The rating recognizes the benefits of strengthening financial soundness through capital raising while also reflecting the bonds’ subordinated status and the possibility of interest payments being suspended.
According to investment banking (IB) industry sources on the 13th, Moody’s assigned an ‘A2(hyb)’ credit rating to the US dollar-denominated lower-tier subordinated capital securities that Samsung Life plans to issue. Samsung Life had earlier decided to issue up to $1.5 billion (about 2 trillion won) in overseas hybrid capital securities.
The rating on these bonds is two notches below Samsung Life’s ‘Aa3’ Insurance Financial Strength Rating (IFSR). Moody’s took into account that the securities are unsecured subordinated obligations, ranking below the insurer’s senior debt and dated subordinated debt in the order of repayment. Their risk profile differs from that of ordinary corporate bonds because interest payments may be suspended at the issuer’s discretion and the maturity may be extended.
The capital securities have a 30-year maturity with an extension option and may be redeemed early, with prior approval from domestic financial authorities, starting five years after issuance.  Capital adequacy is expected to improve further after the issuance.
Samsung Life’s K-ICS ratio was 208.2% at the end of June, up 10.2 percentage points from 198.0% a year earlier.
Moody’s noted in its report, “We expect Samsung Life Insurance’s K-ICS ratio to rise further following the issuance of these subordinated capital securities.”
However, Moody’s said it could consider a downgrade if capital adequacy weakened significantly and the K-ICS ratio remained below 180% on a sustained basis.
A sustained decline in the return on capital (ROC) to below 2% due to weakening profitability, or a standalone-basis financial leverage ratio above 30%, would also be a downgrade factor.
Conversely, Moody’s said an upgrade would require not only maintaining robust capital adequacy and profitability, but also diversifying overseas operations and earnings and reducing concentration in equity investments. It also cited sustained growth in new-business profits and the contractual service margin (CSM) as important conditions.

[email protected] Kim Hyun-jung Reporter