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Correction: Fitch Affirms Hyundai Motor and Kia at 'BBB+'; Outlook Stable

(The following statement was released by the rating agency) SEOUL/SINGAPORE, January 09 (Fitch) This announcement corrects the version published on 12 September 2014 to include the affirmation of the ratings on the notes issued by Hyundai Motor Company's subsidiary, Hyundai Capital America (HCA). Fitch Ratings has affirmed South Korea-based Hyundai Motor Company's (HMC) and its subsidiary Kia Motors Corporation's (Kia) Long-Term Foreign Currency Issuer Default Ratings (IDR) at 'BBB+'. Fitch has also affirmed the companies' senior unsecured ratings at 'BBB+' and their Short-Term Foreign Currency IDRs at 'F2'. The Outlooks on the Long-term IDRs are Stable. The ratings on notes issued by HMC's subsidiary HCA have also been affirmed at 'BBB+'. HMC's and Kia's ratings and Stable Outlook are supported by their strong financial position and continued generation of substantial free cash flow, despite lower margins and intensifying competition in the near term. KEY RATING DRIVERS Profitability Weakens: Fitch expects HMC's and Kia's profitability in 2014 to weaken further and remain below the 2011-2012 peak levels. This is due to the appreciation of the Korean won against major currencies, a portfolio of ageing models and intense price competition. HMC posted a consolidated EBITDA of KRW5.3trn (USD5.1bn) in 1H14, down 4.2% yoy, and Kia posted EBITDA of KRW2.1trn, down 13.6% yoy. However, overall profit levels should remain robust, supported by high capacity utilisation, an improving cost structure and higher average selling prices (ASP) with new models scheduled to be launched. Earnings Volatility: HMC and Kia continue to be vulnerable to the impact of a strong Korean won on their profitability and competitiveness as both companies derive a substantial portion of revenue from overseas markets. Unfavourable foreign exchange movements led to weaker margins in 1H14 even though the companies produced more vehicles overseas and their average selling prices increased. HMC's consolidated EBITDA margin fell to 12% in 1H14 from 12.4% in 2013 and Kia's EBITDA margin slid to 8.9% from 9.2% in 2013. New Model Cycle Begins: Fitch expects HMC's and Kia's performance to pick up from late 2014 as HMC, in particular, will begin to replace bestselling models, such as the mid-sized sedan Sonata. The new models are likely to offset some of the impact of the stronger won, although competition, especially with Japanese auto makers, is likely to remain keen in the US market. HMC's and Kia's market shares in major markets except China have fallen recently, mainly due to fewer new products relative to Japanese automakers in key competing segments. Robust Financial Position: Fitch expects the companies to continue generating sizable positive free cash flow in the short term based on moderate sales growth and high capacity utilisation. HMC's and Kia's ratings are supported by their strong financial position, which is likely to improve in 2014. The combined net cash position of the two companies (excluding HMC's financial subsidiaries) was KRW17trn at end-2013, up from KRW9.5trn at end-2012 and KRW3trn at end-2011. Benign Industry Environment: Globally, Fitch expects auto sales and production to rise in the low- to mid-single digits in 2014, propelled by ongoing demand strength in the US and, to a lesser extent, in emerging markets. US light vehicle sales in 1H14 rose 4.3% yoy and Fitch expects the full-year figure to reach 16 million units, a 3% increase from 2013. Europe's auto market is likely to recover with a modest rise in sales volume in 2014 of around 3%-4%. Meanwhile, growth in the larger emerging markets, such as China and India, is expected to remain stable. Kia's Rating Linked to HMC's: Fitch believes that Kia continues to be integral to HMC's long-term growth strategy as a global automaker, as well as to its group structure. As such Kia's ratings are equalised with HMC's ratings. Kia's credit rating is linked to HMC's due to the strong strategic and operational ties between the two companies. These include platform integration, shared R&D and procurement, and the same senior management team led by Hyundai Group Chairman, Chung Mong Koo. While Kia's financial statements are no longer consolidated into HMC's, Fitch sees no change in the strong linkages between the two companies. RATING SENSITIVITIES Negative: Future developments that may, individually or collectively, lead to negative rating action include:- Hyundai Motor - HMC's and Kia's combined adjusted net debt/EBITDA (industrial operations) is sustained above 0.5x (2013: -1.2x) -Sustained negative free cash flow -Major reversal of market recovery or sustained market share erosion in key markets Kia Motors -Downgrade in HMC's rating -Weakening of linkages between HMC and Kia Positive: Future developments that may, individually or collectively, lead to positive rating action include:- Hyundai Motor and Kia Motors -Positive rating action is not envisaged over the current rating horizon given the concentration of the companies' products on the volume segment. Contact: Primary Analyst Shelley Jang Associate Director +82 2 3278 8370 Fitch Ratings Australia Pty., Korea Branch 9F Kyobo Securities Building 97, Uisadang-daero, Yeoungdeungpo-Gu Seoul, Republic of Korea Secondary Analyst Jeong Min Pak Senior Director +82 2 3278 8360 Committee Chair Kalai Pillay Senior Director +65 6796 7221 Media Relations: Leslie Tan, Singapore, Tel: +65 67 96 7234, Email: [email protected]; Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: [email protected]. Additional information is available on www.fitchratings.com THE ISSUER DID NOT PARTICIPATE IN THE RATING PROCESS, OR PROVIDE ADDITIONAL INFORMATION, BEYOND THE ISSUER'S AVAILABLE PUBLIC DISCLOSURE. Applicable criteria, "Corporate Rating Methodology: Including Short-Term Ratings and Parent and Subsidiary Linkage", dated 28 May 2014 is available at www.fitchratings.com. Related Research: "Rating Automotive Manufacturers", dated 9 August 2012 Applicable Criteria and Related Research: Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=749393 Rating Automotive Manufacturers http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=682336 Additional Disclosure Solicitation Status http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=966055 ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S FREE WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. 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