SK Hynix's 40 Trillion Won Stock Buyback Has Limited Credit Impact: NICE

South Korean credit rating agency NICE Investors Service has stated that SK Hynix's decision to acquire 40 trillion won in treasury stocks will have a limited impact on its creditworthiness. The agency acknowledged that the move will increase cash outflow but believes the company's strong cash generation and financial buffer will mitigate the risks.

SK Hynix revised its shareholder return policy, shifting from a cap of 50% of cumulative free cash flow (FCF) to a floor of 50% or more for the period 2025-2027. This change signals a commitment to returning more value to shareholders.

The company's financial standing appears robust, with earnings before interest, taxes, depreciation, and amortization (EBITDA) and FCF reaching 105.9 trillion won and 72.8 trillion won respectively in the first half of the year. As of the end of June, its net cash, including lease liabilities, stood at 66.8 trillion won. The company had previously set a medium-term financial goal of over 100 trillion won in net cash (excluding lease liabilities) and indicated that this goal could be pursued alongside expanded shareholder returns.

Considering the approximately 40 trillion won raised from issuing American Depositary Receipts (ADRs) in July, SK Hynix's net cash is estimated to have exceeded 100 trillion won before the treasury stock acquisition began. NICE Investors Service projects that while net cash might temporarily fall below this target after the acquisition, the company's substantial financial buffer will be maintained, considering the 34.3 trillion won increase in net cash during the second quarter and ongoing operating cash flow generation.

However, the rating agency cautioned that the memory semiconductor industry's high volatility poses a risk. If the expanded shareholder return policy is maintained even when the industry faces a downturn, the company's financial buffer could be depleted rapidly.