SK Hynix credit rating outlook now negative

Moody’s Investor Service changed the outlook for SK Hynix to negative from stable on Tuesday, citing increased debt in the wake of industry uncertainties, such as Japan’s export restrictions.

While the agency did not revise the company’s credit rating of Baa2, it explained its outlook was changed as a result of announcements made in the second quarter earnings report.

SK Hynix’s debt was 8.7 trillion won ($7.4 billion) as of June 30, compared to 5.3 trillion won at the end of last year. The company recorded an operating profit of 637.6 billion won in the second quarter, down 53 percent on quarter and 89 percent from the same period last year.

“The negative outlook reflects SK Hynix’s declining financial flexibility, as evidenced by a significant increase in net debt during the first half of 2019,” said Sean Hwang, an analyst at Moody’s.

The agency also said that Tokyo’s recent restrictions on semiconductor material exports to Korea also factored in the outlook revision, adding that, if expanded, they could “disrupt” SK Hynix’s production.

Tokyo is expected to remove Korea from its “white list” of trusted trade partners this Friday, which would tighten exports of more than 1,000 product categories to Korea.

Moody’s has already expressed concern about the growing trade row, saying in a recent report that Tokyo’s measures earlier this month weigh on Korea tech companies.

The agency, however, said that it expects industry conditions to improve next year due to production cuts by chipmakers and a rise in demand.

During its second quarter earnings announcement on July 25, SK Hynix has said it will adjust production. It explained that DRAM production will be cut, while some of the capacity at the company’s M10 plant in Icheon, Gyeonggi, which mainly produces DRAM, will be transferred to the production of non-memory CMOS image sensors.

BY CHAE YUN-HWAN [chae.yunhwan@joongang.co.kr]