TEXT-S&P: Korea-Based SK Telecom's Global Bonds Rated 'A-'
(The following was released by the rating agency)
HONG KONG (Standard & Poor's) Oct. 24, 2012--Standard & Poor's Ratings Services today assigned its 'A-' rating to proposed senior unsecured bonds to be drawn from SK Telecom Co. Ltd.'s (SKT; A-/Stable/--) $3 billion global medium-term note (MTN) 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 take into account intense competition in the mature domestic market, uncertainty in the regulatory environment, and 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 strong debt servicing capacity. The stable outlook also reflects our expectation that SKT will not materially increase its ownership or capital investment in Hynix in the next few years.
Any of the following could pressure our ratings:
-- A material increase in SKT's ownership or capital investment in Hynix or in other substantial investments in noncore businesses;
-- A substantial weakening of SKT's operating profitability, likely due to regulatory pressure or intensifying competition, causing SKT's EBITDA margin to decline 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, due mainly 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, likely as a result of weaker operating performance or larger-than-expected capital investments.
Though less likely, we may raise our ratings if SKT shows sustainable improvement in its financial risk profile and a more conservative growth strategy.
RELATED RESEARCH AND CRITERIA
2008 Corporate Criteria: Analytical Methodology, April 15, 2008
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