NICE Investors Service has placed SK Siltron on its watch list for a possible credit rating downgrade. The rating agency said Doosan's (000150) acquisition of SK Siltron could weaken the likelihood of support from SK Group. Doosan, meanwhile, is expected to see a positive impact on its operating performance despite the financial burden, so the effect on its credit rating is analyzed to be limited.
NICE Investors Service released a report on the 3rd, saying it would review SK Siltron's credit rating outlook for a downgrade. As a result, SK Siltron's long-term credit rating was adjusted from the previous "A+, stable" to "A+, under review for downgrade." Korea Investors Service and Korea Ratings have maintained SK Siltron's credit rating at "A+, under review for downgrade" since December last year, when Doosan was selected as the preferred bidder for the SK Siltron acquisition.
NICE said that if SK Siltron leaves SK Group, it could become difficult for the company to receive support in an emergency. This is because SK Siltron's current credit rating reflects the possibility of group support, placing it one notch above its standalone creditworthiness. In its report, NICE said, "Considering that Doosan Group's creditworthiness is lower than SK Siltron's, the upward adjustment of the credit rating due to affiliate factors will be removed once the sale process is completed." NICE currently rates Doosan's credit rating at "BBB+, positive."
The business and financial environment after the largest shareholder changes to Doosan is also cited as a variable that will determine the credit rating. NICE noted that additional impairment losses could arise on remaining inventory assets and tangible and intangible assets during the liquidation of SK Siltron's U.S. subsidiary, which operates the silicon carbide (SiC) business.
By contrast, the impact on Doosan's credit rating was seen as limited. Doosan's net borrowings on a separate basis are expected to increase from 600 billion won at the end of March this year to the 3 trillion won range after the acquisition. This is because the SK Siltron acquisition alone is expected to require large-scale funding, including 1.3 trillion won in cash and 1 trillion won in borrowings. Nevertheless, the prevailing analysis is that acquiring SK Siltron, one of the world's top three semiconductor wafer manufacturers, will further improve operating performance. SK Siltron's average annual earnings before interest, taxes, depreciation and amortization (EBITDA) over the past three years was in the 600 billion won range, exceeding the average EBITDA (186.3 billion won) that Doosan recorded on a separate basis over the same period.
