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.
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The first name below is the lead rating analyst for this Credit Rating
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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.)
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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
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Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077