OREANDA-NEWS. S&P Global Ratings said today that it had affirmed its 'A-' long-term corporate credit rating on Korea-based telecommunications provider SK Broadband Co. Ltd. (SKB). The outlook is stable. At the same time, we affirmed our 'A-' long-term issue rating on SKB's senior unsecured notes.

The affirmation reflects our view that SKB's credit quality and strategic importance to SK Telecom Co. Ltd. (SKT) will be unaffected by the regulator's disapproval of the merger between SKB and CJ HelloVision Co. Ltd. (CJHV).

On July 18, 2016, the Korea Fair Trade Commission disapproved SKT's proposal to acquire a 30% stake in CJHV and merge the company with SKB. The commission noted that the merger could limit fair competition in Korea's pay-TV market. The finalization of the disapproval is subject to clearance from the Ministry of Science, Information, Communication and Technology, and Future Planning, and the Korea Communications Commission.

In our view, the merger is highly likely to be cancelled given the regulatory disapproval by the Fair Trade Commission. However, we believe that SKB will remain a core subsidiary of SKT. That's given SKB's critical role in the group's growth strategy and the accelerating convergence of the media and telecom businesses in Korea. SKB's Internet pay TV (IPTV) business is one of the most rapidly growing businesses of the SKT group, and we expect this trend to continue over the next two years. SKB enables SKT to offer various bundled products to compete with other fully integrated domestic telecom peers, KT Corp. and LG Uplus Corp.

SKT's increase in its stake in SKB to 100% in 2015 supports our view of the parent's increased strategic focus on SKB's rapidly growing media business.

The stable outlook on SKB reflects the outlook on SKT. We equalize the ratings on SKB with those on SKT, reflecting SKB's core status in the SKT group.

The stable outlook on SKT reflects our opinion that the company will generate stable operating cash flows and maintain solid financial metrics over the next 12-24 months on the back of its strong market position.

We may lower the rating on SKB if we downgrade SKT. Triggers for this could be weaker-than-expected profitability or larger-than-expected capital investments at SKT, resulting in its adjusted debt to EBITDA staying above 2.3x for a prolonged period.

The rating on SKT could also come under downward pressure if SKT materially increases its ownership of SK Hynix Inc. or makes other significant investments in noncore businesses.

We could also lower our rating on SKB if its link with SKT weakens significantly.

We may raise our rating on SKB if we upgrade SKT.

We could raise our rating on SKT if the company reduces financial risk while maintaining stable profitability and a prudent financial policy. SKT's debt-to-EBITDA ratio (both including and excluding pro-rata consolidation of Hynix) being well below 1.5x on a sustainable basis would indicate such improvement.