(Press release provided by Moody's Investors Service)
Tokyo, May 23 - Moody's Investors Service has upgraded the debt ratings of Hyundai Motor Company (HMC) to Ba1 from Ba2. The ratings had been under review for possible upgrade since February 3, 2003.
The rating outlook is stable. The upgrade is based on HMC's continuing solid operating performance and improving debt coverage measures.
The rating action also reflects HMC's growing global presence - particularly in North America - its dominant market position in Korea, and the positive earnings impact of its improving model mix.
Over the past several years, HMC has posted significant growth in sales, supported by strong demand in Korea and improvements in the quality and brand image for "Hyundai" cars, especially in the US, and there is further support from the highly attractive warranty programs in North America.
While HMC will continue to face operating challenges which may affect its future operating performance, such as unpredictable foreign exchange rates and potential hikes in warranty costs, Moody's believes that HMC can maintain its strong operating performance and cash flow generation capabilities in the intermediate term.
Meanwhile, Moody's has concerns over HMC's 2 subsidiaries in the consumer finance business, Hyundai Card and Hyundai Capital. The level of non-performing assets at Korean consumer finance companies is rapidly increasing, and the government recently asked such companies to improve the capital base of Hyundai Card.
HMC (parent) does not guarantee the debt of Hyundai Card and Hyundai Capital. However, the government may strongly urge HMC to support both companies through capital injections. Moody's believes that the concerns regarding the consumer finance subsidiaries are manageable, considering HMC's strong equity base and ample cash position, as well as its strong cash flow generation capability.
Moody's will continue to monitor the restructuring measures of the two subsidiaries. HMC has considerably improved its financial position and debt coverage measures, increasing its capability to remain competitive through the business and economic cycle.
Moody's believes that competitive pressures on the global automobile industry are likely to continue. Nevertheless, against such a backdrop, we expect HMC's operating performance to remain sustainable, supporting its stable rating outlook. Hyundai Motor Company, headquartered in Seoul, is Korea's largest automobile manufacturer.