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Rating Action:

Moody's affirms SK Telecom's A3 ratings; outlook remains negative

 The document has been translated in other languages

11 Jun 2020

Hong Kong, June 11, 2020 -- Moody's Investors Service has affirmed SK Telecom Co., Ltd.'s (SKT) A3 issuer rating, as well as the A3 senior unsecured ratings on its $500 million bonds due 2023 and $400 million notes due 2027.

The outlook remains negative.

RATINGS RATIONALE

"The rating affirmation reflects our expectation that SKT will grow its earnings in 2021, supported by increasing 5G adoption by subscribers, and in turn gradually reduce its financial leverage," says Sean Hwang, a Moody's Assistant Vice President and Analyst.

"That said, the outlook remains negative, reflecting the lingering uncertainty over SKT's ability to control its expenditures and curb further debt growth," adds Hwang.

Moody's expects SKT's annual adjusted EBITDA to improve to KRW5.6 trillion-KRW5.8 trillion over the next 12-18 months from KRW5.4 trillion in 2019. This projected improvement factors in (1) around KRW150 billion in expected EBITDA contributions from the completed merger with TBroad Co., Ltd., (2) a gradual uptake of 5G service plans by subscribers, which should drive improvement in the company's mobile revenue, and (3) incremental earnings contributions from growing non-mobile businesses, such as media.

Moody's furthermore expects the company's reported debt will decline slightly to around KRW11.0 trillion-KRW11.5 trillion over the next 12-18 months from KRW11.6 trillion (including lease obligations) as of 31 March 2020. This expectation reflects Moody's assumption that the company's 5G-related capital spending and marketing expenses will moderate from the high levels in 2019.

Consequently, Moody's expects SKT's adjusted debt/EBITDA to fall to around 2.2x-2.3x over the next 12-18 months from 2.4x in 2019. These projected metrics would position SKT at the weak end of the A3 rating category.

That said, risk remains over this projection because of lingering uncertainties over marketing expenses. SKT's marketing expenses increased significantly in 2019 amid stiff competition for 5G subscribers. Repetition of such high marketing expenses would offset an increase in mobile revenue and therefore constrain earnings improvement.

SKT's ratings continue to factor in its strong position in Korea's telecommunications market as well as its 20.1% stake in SK Hynix Inc. (Baa2 negative), the latter of which provides it with significant financial flexibility and business diversity.

In terms of environmental, social and governance (ESG) considerations, the ratings also factor in SKT's increasing appetite for investments in non-telecom businesses and the effective control by the chairman over SKT's key business decisions. The risk associated with the latter factor is mitigated by SKT's status as a listed company and the presence of five independent directors on SKT's eight-member board.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

The outlook could return to stable if SKT improves its financial profile by successfully strengthening its earnings and/or curbing debt growth, such that adjusted debt/EBITDA stays below 2.3x.

On the other hand, Moody's could downgrade SKT's ratings if the company's core earnings continue to fall or if it fails to deleverage, such that adjusted debt/EBITDA exceeds 2.3x on a sustained basis.

The principal methodology used in these ratings was Telecommunications Service Providers published in January 2017 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1055812. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

SK Telecom Co., Ltd. is the largest mobile telecommunications provider in Korea, with a subscriber share of around 48% at 31 March 2020. SKT is also the controlling shareholder of SK Broadband, Inc., Korea's second-largest fixed-line operator by number of subscribers.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

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Moody's considers a rated entity or its agent(s) to be participating when it maintains an overall relationship with Moody's. Unless noted in the Regulatory Disclosures as a Non-Participating Entity, the rated entity is participating and the rated entity or its agent(s) generally provides Moody's with information for the purposes of its ratings process. Please refer to www.moodys.com for the Regulatory Disclosures for each credit rating action under the ratings tab on the issuer/entity page and for details of Moody's Policy for Designating Non-Participating Rated Entities.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

The first name below is the lead rating analyst for this Credit Rating and the last name below is the person primarily responsible for approving this Credit Rating.

Sean Hwang
Asst Vice President - Analyst
Corporate Finance Group
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

Chris Park
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

Releasing Office:
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

No Related Data.
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