Hong Kong, May 10, 2018 -- Moody's Investors Service has revised to negative from stable the outlook
on SK Telecom Co., Ltd.'s (SKT) A3 issuer rating,
and the A3 senior unsecured rating of its $500 million bonds due
2023 and $400 million notes due 2027.
At the same time, Moody's has affirmed both ratings.
RATINGS RATIONALE
"SKT's negative ratings outlook reflects our expectation that
if the company's acquisition of ADT Caps is completed, it
will raise SKT's debt leverage, at a time when its core mobile
business remains under pressure due to lower mobile tariffs,"
says Sean Hwang, a Moody's Analyst.
On 8 May, SKT announced that it would acquire a 55% stake
in ADT Caps Co., Ltd., a security services provider
in Korea, for a consideration of KRW702 billion. SKT expects
to complete the transaction by the end of 2018, subject to regulatory
approval.
While the company will fund part of the acquisition using cash on hand,
Moody's expects that the transaction — once completed —
will raise SKT's debt leverage because of the full consolidation
of ADT Caps' debt of around KRW1.8 trillion.
At the same time, Moody's expects that SKT's mobile
revenues — which accounted for around 76% of total revenues
in 2017 — will decline over the next 12-18 months,
due to the increase in optional mobile tariff discounts to 25%
from 20% effective September 2017, and its subscribers'
increasing uptake of such discounted tariff plans.
In addition, Moody's sees a likelihood that mobile tariffs
will fall further, given the government's commitment to lowering
mobile costs for the general public. This pressure on revenues
will not be fully offset by a reduction in marketing expenses and earnings
contribution from ADT Caps.
As a result, Moody's expects that SKT's adjusted debt/EBITDA
will rise to 2.3x over the next 12-18 months from 1.9x
in 2017. The adjusted debt leverage factors in: (1) adjustments
for deferred spectrum obligations; (2) acquisition of ADT Caps in
2018; and (3) the add-back of capitalized customer acquisition costs.
Such a projected leverage level is weak for its A3 ratings category.
Moody's also expects that SKT's adjusted EBITDA margins will
weaken to about 30% over the next 12-18 months from 31%
in 2017.
On the other hand, the A3 issuer rating continues to reflect SKT's
strong position in Korea's telecommunications market, as well
as its 20.1% stake in SK Hynix Inc. (Baa3 positive),
the latter of which provides significant financial flexibility to SKT
and mitigates business risks related to its non-core businesses
such as e-commerce.
The ratings outlook could return to stable if SKT improves its financial
profile by enhancing its earnings and/or implementing substantial deleveraging
initiatives, such that its adjusted debt/EBITDA stays below 2.0x.
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 2.0x
on a sustained basis.
The principal methodology used in these ratings was Telecommunications
Service Providers published in January 2017. 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 December 2017. SKT is also the controlling shareholder of
SK Broadband, Inc., Korea's second-largest fixed-line
operator by number of subscribers.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt 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.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
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
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
Gary Lau
MD - Corporate Finance
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