TEXT: Fitch Downgrades SKT and SKB on Hynix Acquisition

(The following was released by the rating agency)

SYDNEY/SEOUL, February 13 (Fitch) Fitch Ratings has downgraded SK Telecom Co., Ltd.'s (SKT) and SK Broadband Co., Ltd's (SKB) ratings and removed them from Rating Watch Negative (RWN) following the completion of SKT's acquisition of 21% of Hynix Semiconductors Inc. ('BB'/Stable). Stable Outlooks have been assigned. The agency has simultaneously withdrawn the ratings of SKB. A full list of rating actions is detailed below.

"Following the acquisition of Hynix, the downgrades reflect SKT's weaker financial profile and higher business risk," said Alvin Lim, Associate Director in Fitch's Asia Pacific Telecom, Media and Technology team. "The transaction indicates SKT's willingness to invest some of its strong free cash flow generation in businesses with a weaker credit profile."

Fitch does not foresee any significant operational synergy between SKT and Hynix. In addition, Fitch expects the acquisition to raise funds flow from operations (FFO)-adjusted net leverage to around 1.5x at end-2012 (end-2011: 0.8x). Hynix's exposure to the cyclical memory semiconductor industry also weighs on SKT's credit profile.

Fitch forecasts that margin erosion in SKT's core telecom operations will continue due to intense competition in South Korea; it is unlikely that SKT's credit metrics will match their end-2011 levels over the short to-medium term.

Given the strong links between parent and subsidiary, SKB is rated on a top-down basis, one notch below SKT. Consequently, SKB has been downgraded to 'BBB+' from 'A-'. In addition, SKB's ratings have been withdrawn because, following the maturity of its USD500m bond, they are no longer considered by Fitch to be relevant to the agency's coverage. Fitch will no longer provide ratings or analytical coverage of this issuer.

Separately, Fitch has upgraded Hynix to 'BB' on the same acquisition (see related rating action commentary on www.fitchratings.com).

The full ratings actions are as follow:

SKT:

- Long-Term Foreign- and Local-Currency IDRs downgraded to 'A-' from 'A', RWN removed, Stable Outlook assigned

- Senior unsecured rating downgraded to 'A-' from 'A', RWN removed

SKB:

- Long-Term Foreign- and Local-Currency IDRs downgraded to 'BBB+' from 'A-', RWN removed, Stable Outlook assigned. Ratings withdrawn