TEXT: Fitch Upgrades Hynix to 'BB' on SKT's Acquisition

(The following was released by the rating agency)

SYDNEY/SEOUL, February 13 (Fitch) Fitch Ratings has upgraded Hynix Semiconductors Inc.'s (Hynix) Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDR) and senior unsecured ratings to 'BB' from 'BB-' respectively and removed them from Rating Watch Positive. Stable Outlooks have been assigned. This follows the completion of SK Telecom Co., Ltd.'s (SKT, 'A-'/Stable) acquisition of 21% of Hynix.

"Notwithstanding limited operational synergy with SKT, the upgrades reflect Fitch's view that Hynix will be an important asset for SKT given the chairman's strong desire to expand into manufacturing," said Alvin Lim, Associate Director in Fitch's Asia Pacific Telecom, Media and Technology team. "Therefore, Hynix is now rated a notch above its standalone level, reflecting actual and implied support from SKT."

SKT has expressed its commitment to improving Hynix's competitiveness with an aggressive capex plan of at least KRW4.2trn in 2012, mainly for NAND. Fitch also believes that SKT is likely to provide financial assistance should Hynix encounter severe financial distress given the high reputational risk associated with a failure of Hynix. In addition, Hynix should benefit from improved access to the domestic capital market due to the strong SKT brand name.

Meanwhile, Fitch retains a conservative view on Hynix's DRAM operations given substantial price falls and resultant EBIT losses during the second half of 2011. However, the agency forecasts that the industry may gradually improve in 2012 given ongoing capacity reduction by second-tier DRAM makers. In addition, strong demand for NAND should mitigate weak DRAM performance, leading Fitch to forecast that Hynix's operating margins and cash generation will improve in 2012.

Fitch will consider further positive rating action if Hynix's funds flow from operations (FFO)-adjusted leverage falls below 2x (Fitch forecast 1.9x for FY11), EBIT margins rise above 6% (Fitch forecast 3.1% for FY11) and free cash flow remains positive on a sustained basis. Conversely, a negative rating action may be considered if FFO-adjusted leverage increases above 3x or if margins weaken on a sustained basis. In addition, any indication of weakening ties between SKT and Hynix may also result in a negative rating action.

Separately, Fitch has downgraded SKT and SK Broadband Co. Ltd on the acquisition (see related rating action commentary on www.fitchratings.com).