August 2026: S&P Global Ratings Re-affirms KT&G’s Credit Rating at “A-” with Outlook Stable
S&P Global Ratings has reaffirmed its A- long-term issuer credit rating for KT&G Corporation with a Stable outlook. The rating reflects KT&G’s dominant position in the South Korean domestic tobacco market, reliable cash flow, and strong standing in Next Generation Products (NGPs). These core strengths are balanced against the company’s smaller global scale, concentration in a single primary market, lower profit margins compared to global peers, and elevated capital expenditures over the near term.
KT&G holds approximately 66% of the South Korean combustible tobacco market, up from 58% in 2015, supported by localized product design, competitive pricing, and targeted marketing. In the Heat-Not-Burn (HNB) segment, KT&G leads the domestic market with a 47% share, ahead of Philip Morris International’s 42%. NGPs generated 22% of KT&G’s tobacco revenue in 2023, placing it second globally behind Philip Morris International. International HNB expansion is facilitated by a 15-year partnership with Philip Morris International, allowing KT&G to earn royalties without incurring substantial upfront global distribution costs.
The company’s credit profile remains constrained by its smaller operating scale and lower profit margins. KT&G’s overall revenue is about one-quarter that of Imperial Brands, and its heavy reliance on the South Korean market increases exposure to domestic regulatory risks. Profit margins remain lower than global peers due to steady domestic prices since 2015, the compulsory use of higher-cost domestic leaf tobacco, and lesser scale. Additionally, a lack of direct control over overseas HNB distribution may limit international operational expertise over the long term.
To drive growth, KT&G is expanding production in Kazakhstan and Indonesia, targeting an increase in overseas tobacco revenue contribution from 39% in 2023 to nearly 50% by 2027. This strategy requires capital expenditures of approximately ₩810 billion in 2024 and ₩630 billion in 2025, up from ₩517 billion in 2023. Planned dividends and share repurchases will result in annual shareholder cash outflows of ₩900 billion-1.1 trillion between 2024 and 2026.
Despite capital expenditures and shareholder returns causing discretionary cash flow deficits of around ₩740 billion in 2024 and ₩410 billion in 2025, steady annual operating cash flows of ₩1.1 trillion-1.3 trillion will keep leverage modest. Adjusted debt-to-EBITDA is expected to peak at 0.4x in 2025 before improving as investment tapers in 2026. S&P expects 4% to 8% annual revenue and EBITDA growth through 2026, keeping leverage comfortably below the 0.5x threshold. Downside rating risks center on leverage exceeding 1.5x on a sustained basis due to aggressive debt-funded spending or margin deterioration, while an upgrade would require significant gains in international scale or peer-matching profitability.
June 2026: S&P Global Assigns ‘A-‘ Rating on KT&G’s Proposed U.S. Dollar Senior Notes
S&P Global Ratings has assigned an ‘A-‘ long-term issue rating to KT&G’s proposed U.S. dollar-denominated senior unsecured notes, subject to its review of the final terms and conditions. The agency aligned the rating on the proposed notes with KT&G’s A- issuer credit rating with a Stable outlook, citing limited subordination risk. According to S&P Global, the company’s low leverage reduces the likelihood that any group of lenders would be materially disadvantaged relative to others.
KT&G’s priority debt ratio stood at 14% as of March 31, 2026, well below S&P Global’s 50% notching threshold. The company intends to use the proceeds from the issuance for general corporate purposes, including the refinancing of maturing debt. S&P Global expects KT&G to maintain strong financial metrics, forecasting an adjusted debt-to-EBITDA ratio of 0.4x-0.5x over 2026-2027. The agency also projects steady growth in both revenue and EBITDA during the period.
The ratings agency expects profitability to improve, supported by higher selling prices in KT&G’s overseas combustible tobacco business and increased production from new manufacturing facilities. Rising royalty income from the company’s overseas next-generation product business is also expected to contribute to earnings growth. S&P Global further forecasts that KT&G’s operating cash flow will be sufficient to fund capital investments while supporting its shareholder return program through 2027. Capital expenditure requirements are expected to decline from 2026 following the completion of the company’s major investment cycle in new production plants between 2023 and 2025.
Despite continued elevated shareholder returns through dividends and share repurchases, S&P Global expects KT&G’s adjusted debt to remain broadly stable at ₩850 billion-₩910 billion during 2026-2027, compared with ₩916 billion in 2025.
April 2025: S&P Global rates KT&G’s proposed US$-denominated notes at “A-“
S&P Global Ratings assigned “A-” long-term issue rating to KT&G’s proposed US$-denominated senior unsecured notes. S&P equalizes the rating on the notes with the issuer credit rating on KT&G (A-/Stable). This reflects limited subordination risks. According to S&P, KT&G’s leverage is low enough to limit the possibility of any lenders being significantly disadvantaged relative to other lenders. Additionally, KT&G’s priority debt ratio is 21%, as of December 31, 2024, well below the notching threshold of 50%. KT&G plans to use the proceeds for general corporate purposes, including capital expenditure (CAPEX).
S&P expects KT&G to maintain solid financial metrics, with adjusted debt-to-EBITDA ratio below 0.5x, over the next two to three years. The company is likely to have steady operating cash flow over the period, given its dominant position in Korea’s tobacco market and sizable business from next generation products.
KT&G’s cash flow will be sufficient to meet the company’s investment needs and aggressive shareholder returns over 2024-2026. The company’s CAPEX is likely to increase to ₩790 billion in 2024, mostly for setting up new production capacity in Kazakhstan and Indonesia. S&P estimates CAPEX to be ₩630 billion in 2025 and ₩280 billion in 2026, compared with ₩517 billion in 2023. KT&G’s shareholder returns via dividends and treasury repurchases will also be high over the period.
January 2025: S&P Global Ratings assigns ‘A-‘ long-term issuer credit rating to KT&G
S&P Global Ratings assigned ‘A-‘ long-term issuer credit rating to KT&G with outlook Stable1. In summary, S&P highlights that KT&G’s dominant position in South Korea’s tobacco market and competitive Next Generation Product (NGP) portfolio provide a steady & healthy operating cash flow and a low leverage, while its small scale, high dependency on the Korean market, and weaker profitability constrain its business competitiveness. The Stable outlook assumes that the Company will have 4%-8% revenue and EBITDA growth in 2025-2026 and keep its adjusted debt-to-EBITDA below 0.5x despite increased investments and shareholder returns.
Highlights:
– KT&G’s steady earnings largely stem from its strong domestic tobacco business. In the South Korean cigarette market, KT&G has a market share of ~66%, which has risen from a low of 58% in 2015
– KT&G is well positioned for the transition to NGPs with its competitive heat-not-burn (HnB) products. Among global tobacco companies, KT&G has the second highest revenue contribution from NGPs. In 2023, the company generated 22% of tobacco revenue from NGPs, second only to Philip Morris International (36%). KT&G launched its first HnB product in 2017, shortly after PMI’s launch in the same year. In the South Korean HnB market (the fourth-largest NGP market globally in 2023), KT&G is the leader with about 47% share, ahead of PMI’s 42%.
– KT&G’s small scale, high dependence on a single market and lower profitability constrain its credit profile. The company’s revenue and volumes are less than those of its global tobacco peers. In 2023, KT&G’s revenue was about a quarter of Imperial Brands’. With the exception of Altria, KT&G is far more concentrated in a single market than global tobacco peers. Thereby, KT&G’s dependency on a single market increases the risks from regulatory changes in South Korea.
– KT&G’s tobacco EBITDA margin is lower than those of its global leading tobacco peers – which can be attributed to the absence of price hikes in South Korea since 2015, use of more expensive domestic leaf and smaller scale.
– KT&G’s overseas expansion will likely keep investments high over the next two years. Overseas revenue contribution to the company’s tobacco segment has risen to 39% in 2023 from 27% in 2020. This ratio could increase to close to 50% by 2027.
– KT&G plans to further expand its overseas revenues and is investing in new production capacity in Kazakhstan and Indonesia. This will increase annual capital expenditure (capex) to about ₩810 billion in 2024 and ₩630 billion in 2025, compared with ₩517 billion in 2023 and ₩291 billion in 2022.
– For global expansion of HnB, KT&G partners with PMI. Under the partnership agreement, PMI sells KT&G’s HnB products outside Korea, and KT&G receives royalty payments in return. Although the arrangement helps KT&G distribute its HnB products globally without incurring large upfront investments, lack of direct access to (experience in) the overseas HnB markets could be a constraint in the long term.
– KT&G announced a plan to increase shareholder returns via higher dividends and share repurchases while pursuing growth via global expansion. The company will likely have ₩900 billion-₩1.1 trillion of annual cash outflow over 2024-2026.
– KT&G’s ratio of adjusted debt-to-EBITDA will likely stay below 0.5x over 2024-2028 despite higher investments in 2024-2026 and aggressive shareholders returns.
– KT&G could have discretionary cash flow deficits of about ₩740 billion in 2024 and ₩410 billion in 2025 – resulting in a debt-to-EBITDA ratio of 0.4x in 2025. KT&G’s steady annual operating cash flow of ₩1.1 trillion-₩1.3 trillion in 2024-2026 should limit the increase in leverage. S&P’s base case assumes that KT&G’s adjusted debt-to-EBITDA will peak at 0.4x in 2025 and improve thereafter as its capex reduces significantly from 2026. KT&G should be able to generate positive discretionary cash flow from 2026.
January 2025: Moody’s assigns A3 issuer rating to KT&G with outlook Stable
Moody’s Ratings assigned a first-time A3 issuer rating to KT&G with outlook Stable2. In summary, Moddy’s underlines KT&G’s long-held dominant position in South Korea’s tobacco market, stable earnings, low financial leverage, progress in Next Generation Products (NGPs) and diversification into non-tobacco businesses as core strengths. These are counterbalanced by KT&G’s small scale, modest profitability (compared with similarly-rated global tobacco companies), high reliance to a single market for profit generation, a secular decline in smoking rates in South Korea and increasing shareholder distribution.
Highlights:
– KT&G is the market leader in South Korean cigarette market (with 66% share in 2023). KT&G’s loyal consumer base, diverse product offerings and well-established distribution networks coupled with Korea’s benign regulatory landscape result in steady earnings and strong operating cash flow for the Company.
– Korea’s conventional cigarette market is in a gradual decline as consumers switch to NGP and smoking rates decline steadily. Nevertheless, KT&G maintains largely stable tobacco revenue in Korea through market share gains in conventional cigarettes and a successful entry into the NGP category (- leader with 47% share in 2023).
– KT&G continues to grow its overseas tobacco revenue, with focus on emerging markets. Its new manufacturing plants in Indonesia and Kazakhstan are coming online over the next 1-2 years. Moreover, its NGP partnership with Philip Morris International support KT&G’s overseas business growth.
– KT&G has a credit-positive diversification into non-tobacco businesses which account for around one-third of revenue. In particular, KT&G’s market-leading ginseng business remains as a steady source of profits, while its real estate business provides additional income, through development of idle assets (such as, disused manufacturing sites and regional offices into residential and commercial properties).
– Moody’s project KT&G’s revenue to grow by 1%-2% over the next 1-2 years, as the growing overseas and NGP businesses offset the slightly declining conventional cigarette sales in Korea. As the costs stabilize, KT&G should be able to maintain EBITA margins of ~23% (similar to the levels in 2023-24). KT&G’s profitability is lower than its peers, reflecting the margin-dilutive effects of the non-tobacco businesses and the unchanged cigarette prices in Korea over the last decade. Still, KT&G’s current level of profitability allows it to generate strong operating cash flow.
– KT&G has significantly increased its shareholder distribution in recent years. Coupled with the ongoing capital spending (capex), KT&G’s adjusted debt is set to increase to ₩1.5 trillion-₩1.6 trillion by the end of 2025 from ₩0.6 trillion at the end of 2023. Moreover, the Company will transition into a net debt position of around ₩0.3 trillion from net cash of ₩0.9 trillion over the same period. Moody’s does not expect significant debt growth to continue beyond 2025, at least for the subsequent year or so, because KT&G can fund its shareholder distribution with internally generated cash and its capex will decline from 2026.
– Moody’s project KT&G’s adjusted debt/EBITDA to remain low at 1.0x over the next 1-2 years, compared with 0.9x for the 12 months to September 30, 2024. This level of financial leverage is supportive of the company’s A3 rating, particularly considering the company’s large cash, saleable assets and restricted cash in the US that can be accessed ultimately.
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