TEXT-S&P Assigns 'A-' Rtg To SK Telecom's Medium-Term Note Program
(The following was released by the rating agency)
HONG KONG (Standard & Poor's) Oct. 15, 2012--Standard & Poor's Ratings Services today assigned its 'A-' rating to Korean telecommunications service provider SK Telecom Co. Ltd.'s (SKT; A-/Stable/--) US$3 billion global medium-term note program. The company will issue senior and unsecured obligations under the program.
Our ratings on SKT reflect the company's leading position in Korea's wireless telecommunications market; its strong business risk profile, backed by strong, stable operating cash flow; and its modest financial risk profile.
At the same time, our ratings account for intense competition in the mature domestic market, uncertainty in the regulatory environment, and the SKT group's aggressive growth strategy--mainly through its February 2012 acquisition of a 21% stake in semiconductor maker SK Hynix Inc. (Hynix; BB-/Stable/--).
The stable outlook reflects our expectation that SKT's strong market position should enable the company to continue to generate stable cash flows and maintain a strong debt servicing capability. The stable outlook also reflects our expectation that SKT will not materially increase its ownership stake or capital investment in Hynix in the next few years. Our ratings could come under pressure if any of the following were to occur: -- A material increase in SKT's ownership stake or capital investment in Hynix or other substantial investments in noncore businesses;
-- A substantial weakening of SKT's operating profitability, likely due to regulatory pressure or intensifying competition, such that SKT's EBITDA margin dropped to roughly 25%;
-- A rise in debt to EBITDA for SKT--after pro rata consolidation of Hynix and adjustments for handset receivables securitizations
--above 2.8x on a sustained basis, mainly due to larger-than-expected handset receivables securitizations; or -- Debt to EBITDA for SKT
--after pro rata consolidation of Hynix but excluding adjustments for handset receivables securitizations
--above 1.8x on a sustainable basis as a result of weaker operating performance or larger-than-expected capital investments. Though less likely, we may raise our ratings if SKT shows both sustainable improvement in its financial risk profile and a more conservative growth strategy.