Bangkok--11 Mar--Fitch Ratings
As part of an Asia-Pacific Technology sector-wide review, Fitch Ratings has today downgraded Chartered Semiconductor Manufacturing Ltd's (CSM) Long-term foreign currency Issuer Default rating (IDR) and outstanding senior unsecured debt to 'BB-' (BB minus) from 'BB+'. The Outlook has been revised to Negative from Stable. Details of the revised ratings and the rationale for the same are given below, together with a complete list of rating actions Fitch has simultaneously taken on 17 rated technology names across Asia-Pacific.
"The rating action incorporates Fitch's expectation that the sharp weakening of CSM's financial profile in Q408 is likely to continue through 2009, and possibly 2010, driven by weakening end-market demand in the current recessionary environment," says Priya Gupta, Director in Fitch's Asia-Pacific Telecommunications, Media and Technology team.
CSM's revenues declined 24% sequentially in Q408, which underpinned a sharp decline in margins as a large proportion of its costs are fixed in nature. In an effort to contain costs, CSM has retrenched about 8% of its workforce, instituted temporary salary reductions, and indicated a 35% cut in capex and flat R&D outlays for 2009. However, in Fitch's view, these measures are unlikely to significantly offset the impact of collapsing demand, and consequently the agency expects credit metrics to deteriorate sharply in 2009. The company's net adjusted leverage (as total adjusted net debt divided by Operating EBITDAR) stood at 3.4x at FYE08 and 5.7x (annualised) for Q408, and is expected to exceed 10x by FYE09.
Near-term liquidity is adequate, as CSM held unrestricted cash balances of USD524.5m and undrawn banking facilities of USD1007.9m at FYE08, against debt maturities of USD157.5m and a capex target of USD375m in 2009. Further, the company expects to raise approximately USD300m by mid-April 2009, from a 27-for-10 rights offering with parent Singapore Technologies Semiconductors Pte Ltd (a wholly-owned subsidiary of Temasek Holdings, the investment arm of the Singapore Government) acting as stand-by purchaser for up to 90% of the offering. Nonetheless, Fitch notes that liquidity risk in 2010 remains significant, with substantial debt maturities of about USD542m in principal payments and an additional USD266m in maturing convertible redeemable preference shares.
CSM's ratings consider the government's majority beneficial ownership through Singapore Technologies Semiconductors. The agency's support rationale is based on the company's strategic importance within Singapore's electronics and technology sector, and track record of financial support from its controlling shareholder.
The Negative Outlook reflects Fitch's expectation that CSM's operating and financial performance will remain challenged over the intermediate-term due to the ongoing slowdown in semiconductor demand. In this regard, the agency notes that a sustained deterioration in the company's stand-alone credit profile could result in further ratings downgrades.
Incorporated in 1987, CSM is a pure-play IC foundry based in Singapore which provides comprehensive wafer fabrication services and technologies to semiconductor suppliers and electronics systems manufacturers.
The list below summarises the rating actions taken on Fitch's 17 rated technology names across Asia-Pacific, with specific reference to the Long-term foreign currency Issuer Default Ratings.
China:
ZTE Corporation: Affirmed at 'BB+' with Stable Outlook.
Japan:
- Panasonic Corporation: Downgraded to 'A+' from 'AA-' (AA minus); Rating Watch Negative (RWN) maintained;
- Sharp Corporation: Downgraded to 'A' from 'A+'; Placed on RWN;
- Hitachi, Ltd: Downgraded to 'BBB+' from 'A-' (A minus); Placed on RWN;
- Sony Corporation: Downgraded to 'BBB+' from 'A-' (A minus); RWN maintained;
- NEC Corporation: Downgraded to 'BBB-' (BBB minus) from 'BBB'; Outlook revised to Negative from Stable;
- Toshiba Corporation: Downgraded to 'BB' from 'BBB'; Placed on RWN.
Korea:
- Samsung Electronics Co., Ltd.: Affirmed at 'A+'; Outlook revised to Negative from Stable;
- LG Electronics Co., Ltd.: Affirmed at 'BBB'; Outlook revised to Negative from Stable;
- Hynix Semiconductor Inc.: 'B+'; RWN maintained.
Singapore:
Chartered Semiconductor Manufacturing Ltd: Downgraded to 'BB-' (BB minus) from 'BB+'; Outlook revised to Negative from Stable.
Taiwan:
- Taiwan Semiconductor Manufacturing Company Limited: Affirmed at 'A'; Stable Outlook;
- United Microelectronics Corporation: Affirmed at 'BBB'; Stable Outlook;
- Acer Inc.: Affirmed at 'BBB-' (BBB minus); Outlook revised to Negative from Stable;
- ASUSTeK Computer Inc.: Downgraded to 'BB+' from 'BBB-' (BBB minus); Placed on RWN;
- Quanta Computer Inc.: Affirmed at 'BB'; Outlook revised to Negative from Positive;
- AU Optronics Corporation: Downgraded to 'BB-' (BB minus) from 'BB+'; Outlook revised to Negative from Positive.
Contacts: Priya Gupta, Singapore, +65 6796 7222/ [email protected]; Kevin Chang, Taipei, +886 2 8175 7609/ [email protected].
Media Relations: Shivani Sundralingam, Singapore, Tel: + 65 6796 7215, Email: [email protected].