TEXT-S&P:Korea's Hynix Semiconductor upgraded to 'BB-'; off watch

Tue Feb 14, 2012 2:59am EST

(The following statement was released by the rating agency)

Feb 14 -

-- SK Telecom Co. Ltd. today completed its acquisition of a 21% stake in Hynix Semiconductor Inc. for Korean won (KRW) 3.4 trillion, enabling Hynix to raise KRW2.3 trillion in capital through the issue of new shares to SKT.

-- We raised our long-term corporate credit rating and senior unsecured debt ratings on Hynix to 'BB-' from 'B+', reflecting the company's improved financial flexibility, and we removed the ratings from CreditWatch.

-- The stable outlook reflects our expectation that Hynix's solid market position will enable it to maintain its operating performance and measures of its financial performance in the next one to two years.

Standard & Poor's Ratings Services today raised its long-term corporate credit rating and senior unsecured debt ratings on Korea-based Hynix Semiconductor Inc. (Hynix) to 'BB-' from 'B+', following SK Telecom Co. Ltd.'s (SKT; A-/Stable/--) acquisition of a major stake in the company.

At the same time, we removed all ratings on Hynix from CreditWatch, where we placed them with positive implications on Nov. 14, 2011. The outlook on the long-term corporate credit rating is stable. For today's rating action on SKT, see "Korea's SK Telecom Downgraded To 'A-' On Completion Of Purchase Of Stake In Hynix Semiconductor; Off CreditWatch; Outlook Stable."

The upgrade follows SKT's announcement today that it has completed its acquisition of a 21% stake in Hynix for Korean won (KRW) 3.4 trillion. Under the deal, Hynix issued SKT 101.85 million new shares and received KRW2.3 trillion in equity capital. In our view, this capital increase improves Hynix's capital structure and financial flexibility. We estimate the company's ratio of debt to capital will improve to about 37% in 2012 from about 46% in 2011.

Standard & Poor's expects Hynix to maintain its strong position in the global industry for semiconductor memory. Although the company incurred operating losses in the second half of 2011, mainly due to a sharp decline in DRAM prices and global economic uncertainties, we expect the company to gradually recover profitability from the second quarter of 2012 due to relatively solid performance in its NAND flash memory and mobile DRAM businesses.

The stable outlook reflects our expectation that Hynix's solid position in the market will enable it to maintain its operating performance and measures of its financial performance in the next one to two years.

We may raise the ratings on Hynix in the event of the following:

-- Hynix and SKT demonstrate a record of business and management integration or financial support that results in stronger ties between the companies; or

-- Hynix significantly improves its market position in its core business, resulting in the generation of solid free cash flow on a sustainable basis.

On the other hand, we could lower the ratings in the event of the following:

-- We assess that Hynix's growth strategy has become significantly more aggressive than we have factored into the current rating; or

-- Key measures of its financial performance deteriorate, such as debt to EBITDA in excess of 3.0x, likely as a result of an unexpectedly long downturn in the global memory semiconductor industry.