Hong Kong, June 11, 2020 -- Moody's Investors Service has confirmed the Baa1 issuer ratings
of Hyundai Motor Company (HMC), Kia Motors Corporation (Kia) and
Hyundai Mobis Co., Ltd., as well as the Baa1
senior unsecured rating of Kia.
The outlooks on all ratings have changed to negative from ratings under
review.
These rating actions conclude the reviews for downgrade initiated on 26
March 2020 for HMC and Kia, and on 27 March 2020 for Hyundai Mobis.
RATINGS RATIONALE
Hyundai Motor Company (HMC)
"The confirmation of HMC's Baa1 rating reflects our expectation
that the company's overall profitability would improve meaningfully
over the next 1-2 years from a low level in 2020, because
of a rebound in auto sales and improving product mix," says
Wan Hee Yoo, a Moody's Vice President and Senior Credit Officer.
Moody's expects HMC's adjusted EBITA margin to fall to about
2.6% in 2020 from 3.5% in 2019, as the
effect of a sharp fall in auto sales will more than offset the company's
improving product mix and the absence of one-off expenses it incurred
in 2019.
Moody's forecasts global auto unit sales to plummet 20% in
2020 because of a significant decline in economic activity amid the coronavirus
pandemic, before rebounding by around 11.5% in 2021.
The degree of contraction in 2020 is likely to be less severe for HMC
and Kia, given the resilience of their domestic market and their
increasing market shares in the US.
Based on these assumptions, Moody's expects HMC's adjusted
EBITA margin to improve to 4%-5% over 2021-22,
which is largely consistent with the Baa1 rating category, although
at the weaker end.
The rating confirmation also reflects its large liquidity holdings,
which will continue to provide an adequate financial buffer. Despite
a likely decrease in 2020, Moody's estimates HMC, excluding
its finance subsidiaries, will maintain reported net liquidity holdings
of around KRW7 trillion over the next 1-2 years.
The negative outlook on HMC reflects the potential for the company's
operating performance to remain weak over an extended period, given
the uncertainty over the severity and duration of the coronavirus pandemic
and the ongoing challenges in the global auto industry.
Kia Motors Corporation (Kia) and Hyundai Mobis Co., Ltd.
"The confirmation of Kia and Hyundai Mobis' Baa1 ratings and the
negative outlooks mirror the rating action on HMC, given the companies'
high degree of linkages with HMC, from both operational and ownership
perspectives," adds Yoo.
Kia's Baa1 ratings considerably benefit from operational support through
a high degree of integration with HMC in all areas except marketing and
design. In addition, Kia's Baa1 ratings reflect the
high likelihood of support from HMC in times of stress, which results
in a one-notch rating uplift.
Hyundai Mobis' rating is closely linked with HMC's rating, based
on Moody's expectation of a high likelihood of extraordinary mutual
support between the two companies, given their strategic importance
to each other.
In addition, Hyundai Motor group controls most of its group companies
through circular shareholdings among HMC, Kia and Hyundai Mobis,
which reinforces the three companies' close linkages.
Moody's expects Kia and Hyundai Mobis' key credit metrics
to weaken considerably in 2020 before a rebound in 2021-22,
exhibiting similar trends to that of HMC.
The ratings of HMC, Kia and Hyundai Mobis also take into account
the following environmental, social and governance (ESG) factors.
HMC, Kia and Hyundai Mobis face a number of longer-term challenges
related to megatrends in the auto industry. These include (1) increasing
environmental standards, stricter emissions regulations and electrification;
(2) autonomous driving and connectivity; and (3) increasing vehicle
safety regulations. In response to these challenges, the
companies aim to expand sales of higher margin products while maintaining
healthy balance sheets.
The deteriorating global economic outlook following the spread of the
coronavirus outbreak, is creating a severe credit shock, and
the global automotive and auto supplier industry is one of the sectors
that will be most severely impacted. Moody's regards the coronavirus
outbreak as a social risk under its ESG framework, given the substantial
implications for public health and safety.
Although the companies plan to gradually expand shareholder returns and
increase investments over the medium term, Moody's does not
expect this strategy to significantly affect their balance sheet strengths
at least over the next 1-2 years. The companies' have
generally maintained prudent financial policies over the past few years.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
HMC's outlook could return to stable if the company improves its
profitability through enhanced sales performance and/or a reduction in
expenses, while maintaining a strong balance sheet. These
developments could be evidenced by its adjusted EBITA margins staying
above 4.5%-5.0% and adjusted net debt/EBITDA
staying below 0.5x on a sustained basis, excluding its finance
subsidiaries.
On the other hand, Moody's could downgrade HMC's rating
if the company's earnings remain weak or if it undertakes significant
investments, such that its adjusted EBITA margins stay below 4.5%
or adjusted net debt/EBITDA exceeds 0.5x on a sustained basis,
excluding its finance companies.
Kia and Hyundai Mobis' outlooks could return to stable if:
(1) HMC's outlook returns to stable, and (2) Kia and Hyundai Mobis
maintain their sound financial profiles.
Moody's would downgrade Kia and Hyundai Mobis' ratings if
HMC's rating is downgraded.
The principal methodology used in rating Hyundai Motor Company and Kia
Motors Corporation was Automobile Manufacturer Industry published in June
2017 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1062773.
The principal methodology used in rating Hyundai Mobis Co.,
Ltd. was Automotive Supplier Methodology published in January 2020
and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1170606.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of these methodologies.
Hyundai Motor Company, headquartered in Seoul, is Korea's
dominant automaker by sales volume. Together with its subsidiary,
Kia Motors Corporation, Hyundai Motor reported approximately 7.3
million units of auto retail sales in 2019.
Kia Motors Corporation is Korea's second-largest automaker by sales
volume and revenue. The company is a subsidiary of Hyundai Motor
Company. Kia's global retail sales totaled about 2.8 million
auto units in 2019.
Hyundai Mobis Co., Ltd. is Korea's largest manufacturer
of automobile parts by revenue, with facilities in Korea,
China, Slovakia, India, the Czech Republic, Russia,
Mexico, Turkey, Brazil and the US. The company is one
of the key members of the Hyundai Motor group, and is the main auto
parts supplier for Hyundai Motor Company and Kia Motors Corporation.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and
sensitivity analysis, see the sections Methodology Assumptions and
Sensitivity to Assumptions in the disclosure form. Moody's
Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
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and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.
At least one ESG consideration was material to the credit rating action(s)
announced and described above.
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issued by one of Moody's affiliates outside the EU and is endorsed
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3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies.
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The first name below is the lead rating analyst for this Credit Rating
and the last name below is the person primarily responsible for approving
this Credit Rating.
Wan Hee Yoo
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
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Hong Kong
China (Hong Kong S.A.R.)
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Chris Park
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
Releasing Office:
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
