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Fitch Downgrades SK Telecom Debt Ratings on Hynix Acquisition

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Fitch Ratings has downgraded SK Telecom's and SK Broadband's ratings and removed them from Rating Watch Negative (RWN) following the completion of SK Telecom's acquisition of 21% of Hynix Semiconductors.

Stable Outlooks have been assigned. The agency has simultaneously withdrawn the ratings of SK Broadband.

"Following the acquisition of Hynix, the downgrades reflect SK Telecom's weaker financial profile and higher business risk," said Alvin Lim, Associate Director in Fitch's Asia Pacific Telecom, Media and Technology team. "The transaction indicates SK Telecom's willingness to invest some of its strong free cash flow generation in businesses with a weaker credit profile."

Fitch does not foresee any significant operational synergy between SK Telecom and Hynix.

In addition, Fitch expects the acquisition to raise funds flow from operations (FFO)-adjusted net leverage to around 1.5x at end-2012 (end-2011: 0.8x). Hynix's exposure to the cyclical memory semiconductor industry also weighs on SK Telecom's credit profile.

Fitch forecasts that margin erosion in SK Telecom's core telecom operations will continue due to intense competition in South Korea; it is unlikely that SK Telecom's credit metrics will match their end-2011 levels over the short-to-medium term.

Given the strong links between parent and subsidiary, SK Broadband is rated on a top-down basis, one notch below SK Telecom. Consequently, SK Broadband has been downgraded to 'BBB+' from 'A-'. In addition, SK Broadband's ratings have been withdrawn because, following the maturity of its USD500m bond, they are no longer considered by Fitch to be relevant to the agency's coverage. Fitch will no longer provide ratings or analytical coverage of this issuer.

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Tags: sk telecom  hynix semiconductors  Korea