Fitch Rates Taiwan-based ASE's Notes Final 'BBB'

Mon Jul 28, 2014 5:39am EDT

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(The following statement was released by the rating agency) HONG KONG/SEOUL/SYDNEY, July 28 (Fitch) Fitch Ratings has assigned Advanced Semiconductor Engineering, Inc.'s (ASE; BBB/Stable) USD300m 2.125% senior unsecured guaranteed notes due 2017 a final rating of 'BBB'. The notes are issued by its wholly owned subsidiary, Anstock II Limited, and unconditionally and irrevocably guaranteed by ASE. The assignment of the final rating follows the receipt of documents conforming to information already received. The final rating is in line with the expected rating assigned on 11 July 2014. The notes are rated in line with ASE's senior unsecured rating of 'BBB' as they represent direct, unconditional, unsecured and unsubordinated obligations of the company. KEY RATING DRIVERS Leading Market Position: The ratings reflect ASE's leading and expanding global market share in outsourced semiconductor assembly and test (OSAT) services. According to Gartner, ASE's market share rose to 18.9% in 2013 (2012: 17.5%). ASE benefits from the positive growth outlook for semiconductor demand over the long term. In addition, Fitch believes ASE's ability to efficiently build system-in-package (SiP) products by taking advantage of the miniaturisation trend in packaging represents a major new market opportunity for the company. Fitch expects ASE's growing SiP exposure to drive further market share gains in advanced packaging. Strong Technology Leadership: The ratings also reflect ASE's strong technology leadership in copper wire based packaging technology and in-house expertise at the system production level. Vertical integration has strengthened ASE's cost structure and technology development while the synergies between its in-house packaging/testing, electronics manufacturing services and material businesses have helped ASE establish a good position in the SiP-related market. All these have translated into stronger revenue and profitability compared with the company's closest competitors. Capital Intensive Operations: The ratings are constrained by the capital intensive nature of the OSAT industry. ASE completed the expansion of its copper wire-bonding capacity by end-2012, but it is increasing investment from 2014 to strengthen its ability, product portfolio and capacity for advanced packaging and SiP-related technologies. However, ASE is relatively well capitalised and has stronger cash flow from operations than its major rivals. Slowing Deleveraging, Low Headroom: ASE's strong cash flow from operations should cover its capex needs. However, ASE is committed to higher cash dividend payments, which will constrain the company's deleveraging pace over the medium term. Fitch's ratings assume that the company's funds flow from operations (FFO)-adjusted leverage falls to 2.0x or less by December 2015. While this is achievable, the company has low headroom at its current ratings; performance below Fitch's base case may lead to a downgrade in the ratings. Adequate Liquidity: Fitch believes that ASE's liquidity will remain satisfactory. Unrestricted cash of TWD44bn at end-March 2014 covered 110% of its debt due within one year. While there may be a temporary free cash flow (FCF) deficit in 2014 due to higher capex and increased cash dividend, Fitch expects ASE's FCF to be positive in 2015 and 2016, although the extent of FCF generation will be limited by its dividend policy. ASE is well supported by banks. Unused banking facilities totalled TWD111.2bn at end-2013. RATING SENSITIVITIES Negative: Future developments that may, individually or collectively, lead to negative rating action include: - operating EBIT margin below 5% (2013: 10.0%), - funds flow from operations (FFO) adjusted leverage above 2.0x (2013: 2.3x) - negative FCF, all on a sustained basis. Positive: Future developments that may individually or collectively lead to a positive rating action include: - operating EBIT margin above 10%, - FFO-adjusted leverage below 1.0x, - pre-dividend FCF margin above 7% (2013: 5.2%), all on a sustained basis. However, Fitch is unlikely to consider an upgrade without a substantial increase in ASE's market share. Primary Analyst Kelvin Ho Director +852 2263 9940 Fitch (Hong Kong) Limited 2801, Tower Two, Lippo Centre 89 Queensway, Hong Kong Secondary Analyst Shelley Jang Associate Director +822 3278 8370 Committee Chairperson Matt Jamieson Senior Director +61 2 8256 0366 Media Relations: Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: wailun.wan@fitchratings.com. Additional information is available at www.fitchratings.com. Applicable criteria, "Corporate Rating Methodology: Including Short-Term Ratings and Parent and Subsidiary Linkage", dated 28 May 2014 are available at www.fitchratings.com Related Research: Rating Technology Companies, dated 9 August 2012 Applicable Criteria and Related Research: Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage here Rating Technology Companies here Additional Disclosure Solicitation Status here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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