กรุงเทพฯ--17 ก.พ.--Standard & Poor's
HONG KONG (Standard & Poor's) Feb. 17, 2015--Standard & Poor's Ratings Services today said that it has lowered to 'B-' from 'B+' its long-term corporate credit and debt ratings on Korea-based analog and mixed-signal semiconductor manufacturer MagnaChip Semiconductor Corp. (MagnaChip). At the same time, we removed the ratings from CreditWatch, where we placed them with negative implications on Dec. 10, 2014. The outlook on the long-term corporate credit rating is stable. "The two-notch downgrade follows MagnaChip's completion of financial restatement and reporting on Feb. 12, 2015," said Standard & Poor's credit analyst JunHong Park.
"The company's restated outcome and recent performance were much worse than our previous expectation, and the company recorded operating losses of US$47 million during the first nine months of 2014." We attribute the results mainly to weak demand from the company's high-end smartphone and display panel related businesses, overproduction of certain items resulting in additional inventory reserves, a decrease in fabrication utilization rate, and a decline in the average revenue per wafer for its semiconductor manufacturing services. We expect the company's operating performance to remain weak over the next few quarters due to additional costs related to the restatements and legal disputes, somewhat weak demand in smartphones, and the planned closure of its six-inch fabrication facility in Cheongju, Korea.
We also see uncertainty over the company recovering its competitive position and operating efficiency in the near term given potential difficulties in new product and customer development and a lower level of planned capital expenditures for 2015. Reflecting this, we lowered our assessment of the company's business risk profile to "vulnerable" from "weak." We expect the company's financial ratios to remain weak over the next 12 months with an adjusted debt to EBITDA ratio of over 10x mainly due to low profitability. Although the company does not have scheduled debt repayments in 2015, we expect its weak cash flows could reduce its cash holdings to about US$50 million-US$100 million during 2015 from US$125 million as of the end of September 2014. Reflecting this, we lowered our assessment of the company's financial risk profile to "highly leveraged" from "significant.
" We believe MagnaChip will make efforts to improve its internal controls and take remedial actions over its operational and financial work flows. We revised our management and governance score to "fair" from "weak" mainly reflecting the company's financial restatement and that it completed the reporting within its targeted timeline. Our base case assumes the following: South Korean GDP growth of about 3.6% in 2014 and 4.0% in 2015;Global semiconductor industry growth of about 5%-7% while MagnaChip revenues decline by about 4% in 2014;A modest decline in revenues in 2015, mainly due to somewhat weak demand in its smartphone related products; Operating margins of about -10%~0% in 2014 and in 2015; Annual capital expenditures of around US$25 million in 2015 in line with the company's plan; andNo dividends or share buybacks in 2015.
This would produce the following credit measures: Adjusted debt to EBITDA of over 10x in 2015; andFunds from operations to debt of about 0%-5% in 2015.The stable outlook reflects our expectation that, despite continued weak profitability and cash flows, the company will be able to meet its financial obligations over the next 12 months owing to its substantial cash holdings without near-term debt maturities. We may lower the ratings if the company's cash level deteriorates significantly, possibly due to worse-than-anticipated operating performance or unexpectedly large additional expenses related to restatements and litigations. We are unlikely to raise the ratings over the next 12 months given the company's highly leveraged financial metrics and weak profitability.