Hanshin Rating, SK Hynix Downgrade Criteria Relaxed
Hankook Rating Postpones Rating Review to First Deal Closing
Intel NAND Business Acquisition Highlights Earnings Stability
[Asia Economy Reporter Suyeon Woo] The business stability of SK Hynix's acquisition of Intel's NAND business division is being highlighted, positively impacting its credit rating. Domestic credit rating agencies initially focused on funding issues immediately after the acquisition decision, but now they are paying attention to the business stability resulting from the acquisition, shifting to a more positive outlook.
According to the industry on the 9th, Korea Ratings recently eased the criteria for downgrading SK Hynix's credit rating. The previous downgrade criteria were defined as ‘EBITDA/sales ratio below 50%’ or ‘net debt dependency exceeding 3% continuously’ based on consolidated financial statements, but the new criteria have been changed to ‘EBITDA/sales ratio below 45%, net debt dependency exceeding 15% continuously.’ Korea Ratings explained the change by stating, "Considering that the acquisition of Intel's NAND business division strengthens NAND business competitiveness and reduces dependence on DRAM, thereby enhancing business stability, the downgrade criteria have been relaxed."
Another rating agency, Korea Investors Service, did not adjust the rating outlook despite SK Hynix's financial statements at the end of last year meeting the downgrade criteria. Korea Investors Service also stated that it would reconsider the level of business competitiveness improvement due to the Intel business acquisition and plans to consider rating changes at the time of the first deal closing. This implies that while current financial statements are important, they intend to comprehensively review changes in business structure due to future portfolio diversification.
SK Hynix is prominent in the mobile NAND sector, and Intel stands out in the enterprise SSD market, so combining the strengths of both companies is expected to maximize synergy. Earlier, SK Hynix announced that it plans to pay the acquisition price in installments: $7 billion (7.9 trillion KRW) at the first deal closing at the end of this year, and $2 billion (2.3 trillion KRW) at the second closing in March 2025. Global credit rating agency S&P also noted the improvement in the DRAM market and SK Hynix's solid cash flow, expecting the acquisition funding to proceed smoothly. S&P estimated the necessary acquisition funding at around 4 to 5.5 trillion KRW, which is more than 1 trillion KRW less than previously expected.
At the shareholders' meeting in March, SK Hynix CEO Lee Seok-hee emphasized the business restructuring and synergy resulting from the Intel NAND division acquisition to shareholders. CEO Lee said, "If the NAND market, currently contested by six companies, is reorganized around leading players, NAND profitability can maintain a stable trend," adding, "Once NAND profitability is on a normal track, the investment and dividend resources available to SK Hynix will also become abundant."
Meanwhile, not only this acquisition but also recent rumors of the sale of Kioxia have emerged, indicating signs of a new reorganization in the global NAND flash market. Japan's Kioxia is the third-largest company in the industry in which SK Hynix has invested equity. If the six fiercely competitive companies narrow down to two or three leading companies through mergers and acquisitions, it is expected that more stable profitability can be secured.
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