RPT-Fitch affirms SK Hynix; withdraws ratings

Thu Sep 26, 2013 5:14am EDT

Sept 26 (Reuters) - (The following statement was released by the rating agency)

Fitch Ratings has affirmed Korea-based SK Hynix Inc.'s (Hynix) Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDRs), as well as its senior unsecured rating at 'BB'. The Outlook on the IDRs is Positive.

Fitch has simultaneously withdrawn all the ratings.

The ratings have been withdrawn as they are no longer considered by Fitch to be relevant to the agency's coverage. Fitch will no longer provide rating or analytical coverage of this issuer.

KEY RATING DRIVERS

Favourable operational outlook: The Positive Outlook reflects Fitch's view that Hynix will continue to benefit from the tighter supply-demand balance over the medium term following the merger of Elipda Memory Inc. and Micron Technology Inc., the world's third- and fourth-largest dynamic random access memory (DRAM) makers respectively.

In addition, DRAM makers' conservative capex and the gradual exit of the second-tier Taiwanese makers from commodity DRAM should lessen competition, which should be positive for Hynix. However, the company's market position as the second-largest maker may be pressured if Elpida-Micron benefits from an increased scale after the merger.

Limited Impact from Fire: Fitch does not foresee any significant impact on the company's credit profile from the fire that occurred in one of its Chinese manufacturing plants in September 2013. This is because the affected plant will return to normal operation in October 2013 while the strong DRAM pricing trend is likely to continue in the short term given tight supply. We forecasts Hynix to generate EBIT margin in the high-teens during H213 (Q213: 28%).

Leverage to improve: Fitch forecasts Hynix's funds flow from operations (FFO)-adjusted leverage will remain well below 2x in medium term (2012: 2x) as improved profitability and conservative capex will lead to positive free cash flow (FCF).

Cyclicality still key risk: While we believe improvements in the supply-demand balance will reduce cash flow volatility, the memory semiconductor industry will remain exposed to cyclicality, which will continue to be a key weakness in Hynix's credit profile.

Support from SKT: Hynix's ratings are a notch above its standalone level of 'BB-' to incorporate the implied support from SK Telecom Co., Ltd. (SKT, A-/Stable) with its 21% ownership of Hynix. Fitch believes that Hynix is an important asset for the SK Group.

A couple walks along the rough surf during sunset at Oahu's North Shore, December 26, 2013. REUTERS/Kevin Lamarque

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