(The following statement was released by the rating agency) SEOUL/SYDNEY, July 28 (Fitch) SK Telecom Co., Ltd’s (SKT, A-/Stable), failure to acquire South Korea’s largest cable television operator will leave it a distant second behind KT Corporation (A-/Stable) in the fixed-line telecommunications market. However SKT’s credit quality will remain intact as stronger financial metrics will offset the weaker position in fixed-line and media, Fitch Ratings says. The Ministry of Science, ICT, and Future Planning decided to terminate its evaluation of SKT’s proposed acquisition of CJ HelloVision Co., Ltd (CJH), accepting the Fair Trade Commission’s (FTC) decision against the merger. On 18 July 2016, the FTC formally confirmed its opposition to SKT’s proposed acquisition of CJH on the basis that it would harm competition in telecommunication and pay-TV markets as the combined company would be the largest TV broadcaster in 21 of the country’s 23 broadcasting regions. SKT will now have to change its long-term strategy for fixed-line and media to help to offset the slower growth in the wireless telecom business. Fitch expects competition in the fixed-line market to increase, especially in the broadband and internet protocol television (IPTV) markets, over the medium term, particularly if SKT tries to gain market share organically. SK Broadband Co., Ltd (SKB, A-/Stable), a wholly-owned fixed-line subsidiary of SKT, has around a 25.3% share in the broadband market after KT’s 41.5% and around 28.9% share in the IPTV market after KT’s 51.4% as of 1Q16. We believe the acquisition of CJH would have boosted SKT’s competitiveness by immediately expanding the company’s pay-TV subscriber base and therefore improving content sourcing power and economies of scale. However, SKT’s cash position would have deteriorated, leaving lower rating headroom. Without the merger, we expect SKT’s FFO net leverage ratio to stay around 1.3x-1.4x in the short term, similar to the 1.4x in 2015. Had the transaction been successful, SKT would have spent around KRW700bn, including a merger with CJH, participation in the capital increase of CJH’s parent CJ Holdings Co., Ltd, and the establishment of a fund to invest in media content with CJ Holdings Co. Ltd. Contact: Shelley Jang Director +82 2 3278 8370 Fitch Ratings Australia Pty., Korea Branch 9F Kyobo Securities Building 97 Uisadang-daero, Yeungdeungpo-Gu Seoul, Republic of Korea Steve Durose Managing Director +61 2 8256 0307 Media Relations: Leslie Tan, Singapore, Tel: +65 67 96 7234, Email: [email protected]; Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: [email protected]. Additional information is available on www.fitchratings.com
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