Business

Fri May 30 03:20:54 PDT 2008

May 30 (Reuters) – RAM Ratings has assigned an AAA rating to the senior notes under South Korea’s National Agricultural Cooperative Federation’s ("NACF") Proposed Medium-Term Notes Programme of up to RM3.3 billion; the long-term rating has a stable outlook.

The AAA rating is anchored by NACF’s strategic importance to the Government of South Korea ("GoK"), as the latter’s policy arm in implementing agricultural policies by enhancing the competitiveness of the agricultural sector. Established under the Agricultural Cooperative Law in 1961, NACF is owned by more than 1,000 agricultural- and livestock-based cooperatives in South Korea, whose members are all farmers. NACF plays an important role in the South Korean agricultural sector, including making recommendations to the GoK pertaining to agricultural policies, acting as a "central bank" for its members, stabilising food prices, maintaining quality control over agro-livestock products, and improving the status of the domestic farming community.

NACF derives strong financial support from the GoK, as evident from the annual funding that NACF has been receiving from the latter; this represents part of the GoK’s 10-year plan (2004-2013), under which KRW120 trillion (or about RM424 billion) has been earmarked for investments and financial commitments to South Korea’s agricultural sector and farming community. Financial support has also been extended via the waiver of repayments for government loans as well as cash and equity injections.

Meanwhile, NACF enjoys a stable and low-cost funding structure through customer deposits, largely from individuals and local governmental bodies. Moreover, NACF’s critical link with the GoK gives it the privilege of issuing cheaper debentures in the form of agricultural bonds. On that note, government support is further reiterated through a strongly worded Letter of Financial Support from the Ministry of Agriculture and Forestry, expressing its strong intention of taking all necessary measures vis-a-vis managing any unexpected difficulty NACF may face in meeting its debt obligations, including foreign-currency-denominated debt issues.

In addition, the assigned rating takes into consideration NACF’s good asset quality. As at end-December 2007, NACF’s gross and net non-performing-loan ratios stood at 0.5% and 0.1%, respectively (3-month classification basis). Meanwhile, its risk-weighted capital-adequacy ratio came up to 11.1% as of the same date; this is deemed adequate vis-a-vis NACF’s healthy asset quality and improving profit performance.

(Kuala Lumpur Newsroom 603 2333-8046, Fax 603 2072-6752; Bureau e-mail: areuters@gmail.com))

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