(The following statement was released by the rating agency)
Dec 20 -
Summary analysis -- ASM International N.V. ------------------------ 20-Dec-2012
CREDIT RATING: BB-/Positive/-- Country: Netherlands
Primary SIC: Semiconductors
Mult. CUSIP6: 00207D
Credit Rating History:
Local currency Foreign currency
13-Apr-2011 BB-/-- BB-/--
25-May-2009 B+/-- B+/--
The rating on The Netherlands-based semiconductor equipment manufacturer ASM International N.V. (ASMI) reflect Standard & Poor's Ratings Services' assessment of ASMI's business risk profile as "weak" and its financial risk profile as "significant."
ASMI's business risk profile is primarily constrained by the highly cyclical and competitive nature of the semiconductor equipment manufacturing industry and the relatively small scope of ASMI's front-end operations. In addition, the group faces substantial technology risks and relies on a concentrated customer base. These factors are partly offset by what we see as the group's established niche market positions and solid technological product portfolio, and the strong profitability of ASMI's Hong Kong subsidiary ASM Pacific Technology Ltd. (ASMPT).
Our assessment of ASMI's financial risk profile reflects our forecast of only modest free cash flow generation in ASMI's front-end operations throughout the cycle. Another constraint is the high dividend leakage to minority shareholders due to ASMI's only partial (52%) ownership of ASMPT. This is because cash flow from ASMPT is restricted to semiannual dividend payments. These constraints are partly offset by the group's solid capitalization, including large cash balances, and the high value of ASMI's stake in ASMPT relative to its debt. As of Dec. 11, 2012, ASMI's stake was worth about EUR1.85 billion, and as of Sept. 30, 2012, ASMI reported gross financial debt of EUR229 million.
S&P base-case operating scenario
In our base-case forecast, we anticipate that the group's revenues will decline to about EUR1.4 billion in 2012, from EUR1.6 billion in 2011, before seeing a modest recovery to about EUR1.5 billion in 2013, primarily driven by gradually improving industry demand at ASMI's front-end operations and at ASMPT. We believe that recovery in revenues will be supported by stronger uptake of atomic layer deposition equipment and a recovery in demand for LED (light-emitting diode) and back-end process equipment. In the first nine months of 2012, ASMI generated EUR1.1 billion in sales, down 14% year on year.
Due to lower revenues at the group's front- and back-end operations in the first nine months of 2012, we anticipate that ASMI's operating margin (excluding impairments and special items) will remain weak at about 7% in 2012, down from 16% in 2011. At the same time, we anticipate that margins will likely recover meaningfully to about 10%-15% in 2013, thanks to improved factory utilization rates as industry demand gradually picks up, cost-cutting measures, and changes to the product mix.
S&P base-case cash flow and capital-structure scenario
In our updated base-case scenario for 2012 and 2013, we have factored in the successful conversion of the group's EUR150 million convertible bond into equity as of Nov. 27, 2012. As a result, there will likely be only very limited financial debt remaining at company's front-end operations. In addition, we anticipate that the decline in ASMI's EBITDA generation in 2012 will be partly offset by lower gross debt outstanding at the end of the year. We forecast that the group's ratio of gross debt to EBITDA on a proportionate basis will remain at or below 1x at year-end 2012 and 2013, compared with about 1.2x at year-end 2011.
Absent positive working capital changes, we forecast moderately negative free operating cash flow at the group's front-end segment over the coming quarters. However, we anticipate that this cash burn will likely be more than offset by dividends from the group's back-end operations. In the first nine months of 2012, ASMI received EUR29 million in dividends from ASMPT.
We assess ASMI's liquidity profile as "adequate" as defined in our criteria, supported by our view that the group's liquidity sources will exceed its liquidity needs by more than 1.5x in the 12 months from Oct. 1, 2012. However, we do not consider this liquidity profile to be "strong" under our criteria. This is primarily due to our assessment that the group has only a satisfactory standing in the credit markets.
We estimate that ASMI's liquidity sources in the 12 months from Oct. 1, 2012, will exceed EUR0.5 billion. These include:
-- Access to a committed standby revolving credit facility (RCF) of EUR150 million due July 2015, which was fully available as of Sept. 30, 2012;
-- Sizable funds from operations in excess of EUR150 million; and
-- Surplus cash, which we calculate as the difference between available cash balances and about EUR50 million that we estimate as required for operations. As of Sept. 30, 2012, cash on hand amounted to EUR297 million, of which EUR112 million was held at ASMPT.
We estimate ASMI's liquidity needs in the specified period at between EUR0.27 billion and EUR0.37 billion. These include primarily up to EUR100 million in peak working-capital needs in case of a significant industry recovery, capital expenditures of about EUR60 million-EUR70 million, moderate short-term debt maturities at ASMPT, meaningful dividends to ASMPT's minority shareholders and ASMI's shareholders (totaling EUR54 million in 2012), as well as about EUR30 million in cash outflows under the group's current share-repurchase program.
The RCF is secured by a portion of ASMI's stake in ASMPT and contains maintenance financial covenants, under which we forecast that ASMI will have significant headroom over the next 18 months.
The positive outlook reflects the possibility that we could raise the long-term rating on ASMI over the next 12 months if ASMI improved the profitability of its front-end operations on a sustainable basis and the group maintained its current solid net financial cash position. At the same time, an upgrade would be supported by ASMPT improving its operating margins to higher than 15% and continuing to distribute solid dividends to ASMI.
We would likely revise the outlook to stable if we considered that ASMI's profitability would not materially improve over the next 12 months or if significant shareholder distributions were to erode the group's currently solid net financial cash position.
Related Criteria And Research
All articles listed below are available on RatingsDirect on the Global Credit Portal, unless otherwise stated.
-- Criteria Methodology: Business Risk/Financial Risk Matrix Expanded, Sept. 18, 2012
-- Methodology And Assumptions: Liquidity Descriptors For Global Corporate Issuers, Sept. 28, 2011
-- Use Of CreditWatch And Outlooks, Sept. 14, 2009
-- Criteria Guidelines For Recovery Ratings On Global Industrials Issuers' Speculative-Grade Debt, Aug. 10, 2009
-- 2008 Corporate Criteria: Analytical Methodology, April 15, 2008