[SINGAPORE] Standard & Poor's Ratings Services today placed its 'BB+' long-term corporate credit rating and 'axBBB+' long-term ASEAN regional scale ratings on STATS ChipPAC Ltd. on CreditWatch with negative implications. We also placed our 'BB+' long-term issue ratings on STATS ChipPAC's senior unsecured notes on CreditWatch with negative implications.
We placed the ratings on CreditWatch because STATS ChipPAC will not benefit from the likelihood of extraordinary government support if Temasek Holdings (Private) Limited sells its stake in the company to China-based Jiangsu Changjiang Electronics Technology (JCET).
"The group credit profile of the JCET group could be a negative rating factor after the acquisition, given the large size of the transaction relative to JCET's operating scale," said Standard & Poor's credit analyst Katsuyuki Nakai.
The rating on STATS ChipPAC could be lower than the company's 'bb' stand-alone credit profile if our assessment of the group credit profile under the new ownership structure is weaker than that. STATS ChipPAC is a Singapore-based company providing outsourced semiconductor assembly and test services.
STATS ChipPAC has announced that the proposed acquisition could be completed by the end of this month. However, given the non-binding negotiation between STATS ChipPAC and JCET, Temasek will maintain its existing 83.8 per cent ownership if the acquisition does not go through.
"If the acquisition doesn't materialize, we will reassess the likelihood of extraordinary government support based on Temasek's strategy regarding STATS ChipPAC. The rating on STATS ChipPAC gets a one-notch rating uplift because of a 'moderate' likelihood of extraordinary government support," Mr Nakai said.
We expect to resolve the CreditWatch after getting more clarity on the proposed acquisition by JCET.
If the proposed acquisition is completed, our ratings on STATS ChipPAC will be determined by JCET's group credit profile and STATS ChipPAC's group status. We will also examine STATS ChipPAC's business strategy, earnings prospects, and financial policy under the new group structure. We could then lower the rating by more than one notch.
If the proposed acquisition does not happen, we will reassess the likelihood of government support if we expect Temasek to set a definite time frame to divest its stake in STATS ChipPAC. We will also assess the impact of STATS ChipPAC's recent weak financial performance, with the ratio of funds from operations to debt at 27 per cent to 28 per cent for the 12 months ended September 2014.