South Korea could face negative ratings with Kim Jong-Il death

A turbulent political succession in North Korea will heighten its financial and security risks.

In a bulletin release, Standard and Poor's said current currency ratings for South Korea will remain unchanged but only if Kim Jong-Il's successor is chosen without a hitch.

"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. Consequently, while Kim Jong-Il's death has raised uncertainties markedly on the Korean peninsula, we believe that South Korea's sovereign creditworthiness would remain little changed if a smooth North Korean leadership succession takes place," S&P said.

"However, security risks and political stability in North Korea could deteriorate rapidly if political succession is not smooth. South Korea could experience adverse security and financial implications as a result. If sufficiently serious, the creditworthiness of South Korea could be negatively affected," it added.

S&P is basically on a wait-and-see mode to see if leadership succession plans go as planned or awry, and will then revise ratings accordingly.

"Preparations for the leadership transition reportedly began in 2009. In the absence of information to the contrary, we assume 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 us to revise the sovereign ratings or the outlook on the long-term ratings on South Korea," S&P said.