Moody's "SK Hynix Senior Unsecured Bonds Baa2"… Outlook 'Negative'

[Asia Economy Reporter Minji Lee] On the 6th, Moody's assigned a 'Baa2' credit rating to SK Hynix's upcoming issuance of senior unsecured bonds denominated in US dollars. The credit rating outlook was presented as 'negative.'

SK Hynix plans to use the funds raised from this bond issuance for general corporate operating funds such as repayment of existing borrowings and facility investments. In the case of the green bond tranche, the funds raised will be used in accordance with SK Hynix's green financing principles.

Sean Hwang, a Moody's analyst, said, "We considered SK Hynix's excellent market position as the world's second-largest memory semiconductor manufacturer," adding, "We reflected a one-notch rating uplift compared to the standalone credit rating, considering the potential support from its parent company, SK Telecom (A3, negative)."

He continued, "We factored into the rating the high dependence on DRAM for profit generation, the high cyclicality of the memory semiconductor industry, and the large-scale facility investment requirements." The global memory semiconductor market is expected to recover this year due to increased demand from smartphone and data server companies.

Regarding the acquisition of Intel's (A1, stable) NAND memory and storage business (USD 9 billion), it was judged that this would strengthen SK Hynix's competitive advantage in the global memory semiconductor market. This year, the company's adjusted EBITDA is estimated at approximately KRW 19 trillion, reflecting the annual profit of Intel's NAND business. However, borrowings are expected to increase over the next 12 to 18 months as a result.

This year, SK Hynix's adjusted debt-to-book capitalization ratio is expected to rise to 23-25%, up from 21% last year. The adjusted debt-to-EBITDA ratio is estimated to remain generally stable at 0.8 to 1.0 times.

Sean Hwang explained, "These ratios correspond to the weaker boundary within SK Hynix's current standalone credit rating range," and "It is assumed that approximately KRW 4 trillion of new borrowings will be required to finance part of the initial payment of USD 7 billion expected for the acquisition by the end of this year."

However, he noted, "If poor profitability persists, aggressive shareholder returns occur, or large additional borrowings are made for the Intel NAND business acquisition, financial soundness could be threatened, leading to a possible downgrade. Also, if there is a deterioration in market position or negative changes in the relationship between SK Hynix and SK Telecom, downward pressure on the rating could arise."

The industry outlook was presented as 'negative' to reflect uncertainty regarding the scale of SK Hynix's free cash flow generation. Sean Hwang stated, "If cash flow underperforms expectations and borrowings increase more sharply than anticipated due to the acquisition, SK Hynix's leverage ratio could weaken more steeply than Moody's current forecast. However, if the company can curb further significant increases in borrowings through profit improvement and investment management, the outlook could be revised back to 'stable.' Specifically, this would occur if the adjusted debt-to-EBITDA ratio consistently falls below 1.0 times or if the debt-to-capitalization ratio consistently remains below 23-25%."

This content was produced with the assistance of AI translation services.