The death of Kim Jong-il, North Korean leader, would not immediately affect South Korea's A rating, Standard & Poor's Ratings Services said Monday. However, the event has raised security risks on the Korean peninsula and could have negative rating implications if these risks increase.
Our ratings on South Korea take into account temporary uncertainties associated with North Korean security risks as well contingent liabilities arising from a possible reunification of the North and South, KimEng Tan wrote in a statement.
The rating agency said it believes that South Korea's sovereign creditworthiness would remain little changed if a smooth North Korean leadership succession takes place. However, security risks and political stability in North Korea could deteriorate rapidly if political succession is not smooth. If sufficiently serious, the creditworthiness of South Korea could be negatively affected.
Preparations for the leadership transition reportedly began in 2009. In the absence of information to the contrary, S&P assumes that succession in North Korea is proceeding as planned. Current uncertainties are likely to ease if the succession plan is smoothly implemented.
Indications that this assumption is untrue or other signs of political instability developing in North Korea could lead the rating agency to revise the sovereign ratings or the outlook on the long-term ratings on South Korea.
Moody's Investors Service has an A1 rating on South Korea and said it will continue to rate South Korea on economic and financial fundamentals, Bloomberg reported.
Last month, Fitch Ratings raised its outlook on South Korea's A+ ranking to positive. The rating agency said earlier in a statement that the death of Kim Jong-il did not merit a negative move on South Korea, and that it was too early to say that risks had materially increased.