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Investing.com -- Fitch Ratings has upheld the ’A+’ Long-Term Foreign-Currency Issuer Default Rating (IDR) for South Korea’s high-speed rail operator, SR Co., Ltd., with a stable outlook, as announced on Thursday, April 3, 2025.
SR is classified as a government-related entity (GRE), reflecting the government’s substantial influence over its operations. This classification suggests a high likelihood of exceptional government support for SR, if necessary.
The government’s strong expectation to provide extraordinary support to SR, if required, has led to a support score of 25 out of a maximum of 60 under Fitch’s GRE criteria. This score is based on the government’s responsibility and motivation to provide support.
The government holds a 59% stake in SR, while the remaining shares are held by the Korea Railroad Corporation (KORAIL, AA-/Stable). SR’s ownership is limited to public entities, ensuring government control. The Ministry of Land, Infrastructure, and Transport supervises SR’s operations, including budgeting, capital expenditure, and business strategies, aligning these with national policies.
The government has previously contributed KRW359 billion in kind to bolster SR’s equity, reducing its financial burden for buying new rolling stock and enhancing operational capacity. This support lowered SR’s liabilities/equity ratio to below the 150% regulatory threshold, securing its operating license.
SR’s risk profile is assessed at ’High Midrange’, reflecting a combination of revenue, expenditure, and liability and liquidity risks, as well as the financial profile. SR’s 2024 revenue increased by 2.4% to KRW715 billion, driven by a 2.1% rise in fare revenue, despite a modest 1.1% growth in passenger numbers.
Operating costs, including railway-usage fees, commissions, wages, power, and maintenance, have historically been stable, making up 85% to 89% of total expenses. The planned acquisition of 14 new high-speed trains during 2027-2028 involves significant capital expenditure, with most payments due during those years. Government support, through capital injections and favorable dividend policies, helps alleviate this burden.
Adjusted debt decreased to KRW538 billion in 2024, from KRW569 billion in 2023, on reduced lease liabilities and the use of cash for new rolling stock purchases instead of external debt. This lowered adjusted debt to 137% of equity, from 147% in the previous year.
SR’s ratings are based on the four factors assessed under Fitch’s GRE rating criteria, giving a weighted score of 25 out of 60. This is combined with the ’a’ Standalone Credit Profile (SCP) assessed under Fitch’s Public Policy Revenue-Supported Entities Rating Criteria to arrive at the IDR.
SR, established in 2013, is a high-speed railway operator headquartered in Seoul. The entity commenced commercial operations in late 2016. It had five railway routes, including three proprietary stations, as of 2024.
Factors that could lead to a negative rating action or downgrade include weakened government responsibility or incentive to provide support or a deterioration in the risk profile, coupled with a leverage ratio approaching 8x. Conversely, stronger government responsibility or incentive to provide support or a stronger risk profile, coupled with a leverage ratio approaching 4x, could lead to a positive rating action or upgrade.
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