The credit rating agency Moody’s upgraded its issuer and senior unsecured bond ratings on Hyundai Motor (HMC) and its affiliate Kia Motors to Baa1 from Baa2 on 30 October, after HMC posted a 3.1% third-quarter profit increase, as reported by AutomotiveWorld.com on 25 October.
“The rating action on HMC primarily reflects the continued improvement in its financial profile, profitability, brand recognition and global presence. Its net cash position and its strong ability to generate free cash will enable it to withstand external shocks and rising competition without materially compromising its credit profile,” says Chris Park, a Moody’s Vice President and Senior Credit Officer. “The upgrade of Kia’s final rating follows the upgrade of HMC’s ratings, and reflects the close linkage of the companies’ ratings, given the high likelihood of financial support for Kia from HMC in a distressed scenario,” added Park.
Although production was affected by labour disputes in Q3 2012, Moody’s expects HMC’s global sales volume to grow about 7% year-on-year in 2012 – compared with expected growth of 4.4% in global demand. Moody’s also expects HMC and Kia to slightly increase their global market positions over the next couple of years, in view of their continued improvements in brand power, although the degree of growth should slow down owing to fewer new model launches and intensifying competition.
Robust sales performances and expected increases in average selling prices suggest to Moody’s that both HMC and Kia will maintain high profitability over the next few years, although they will be hit by the likely appreciation of the Korean won. The two OEMs’ projected adjusted EBITA margins of 9%-10% over the next one to two years compare favourably with the A/Baa-rated automotive peers, notes the agency.
It expects HMC’s (ex-finance) adjusted net cash position to grow to about Won 5tr (US$4.5bn) at end-2012 and further to about Won 13tr by end-2013, from a net debt position of Won 1.6tr as of 2011. Moody’s expects Kia’s adjusted net cash position to strengthen to around Won 2tr by end-2013 versus net debt of Won 2.4tr at end-2011. Its strong balance sheet and robust profitability “solidly position” the company at the Baa2 standalone rating. The “stable” outlook is based on Moody’s expectation that HMC and Kia will be able to sustain their strong global market positions and high profitability, while generating robust free cash flow over the next 12-18 months.
Moody’s Investors Service has also upgraded dependent supplier Hyundai Mobis Co’s issuer rating to Baa1 from Baa2, with a ‘stable’ rating. “The rating action reflects the close linkage between the ratings of Hyundai Mobis and HMC, given the former’s high dependence on the latter for revenue and the high likelihood of financial support from HMC in a distressed scenario,” said Park. He expects Hyundai Mobis’ adjusted net cash position is likely to grow to around Won 1.5tr at end-2012 from Won 0.1tr at end-2011.
