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Fitch will rake in dividend income

Companies typically pay dividends out of their earnings. This means that they usually do not pay more than they earn because investors would suspect their sustainability.

When checking the financial health of corporations, rating agencies would also examine if the payout ratio is proper.

To grab headlines, however, a South Korean rating agency itself is set to pay out more than it earned last year.

Earlier this month, Korea Ratings opted to offer 38 billion won ($32 million) as a dividend, which is bigger than its profit of 23.1 billion won ($20 million) during the first three quarters of last year.

Including its fourth-quarter result, which is not disclosed yet, the annual profit is highly unlikely to top 38 billion won, according to observers.

The decision causes a controversy that its foreign shareholder of Fitch Ratings rakes in cash from South Korea thanks to the country’s policy of restricting competition.

Three companies, including Korea Ratings, dominate the country’s ratings market because the financial regulator does not allow new entrance.

Korea Ratings was established in 1983, and Fitch Ratings acquired the Seoul-based outfit in 2007. Currently, Firth holds 73.55 percent of Korea Ratings.

Another player, Korea Investors Service, is fully owned by Moody’s.

A Korea Ratings official told media that the favorable dividend was related to its rich retained earnings of 74.7 billion won ($63 million) as of the end of last September.