Hong Kong, March 26, 2020 -- Moody's Investors Service has placed the ratings of five automakers in
Korea and China on review for downgrade.
The five companies are Hyundai Motor Company, Kia Motors Corporation,
Dongfeng Motor Group Company Limited, Beijing Automotive Group Co.,
Ltd. and Geely Automobile Holdings Limited.
At the same time, Moody's has placed on review for downgrade
the ratings on the bonds issued by Dongfeng Motor (Hong Kong) Intl Co.,
Ltd. and BAIC Inalfa HK Investment Co., Limited,
which are guaranteed by Dongfeng Motor Group Company Limited and Beijing
Automotive Group Co., Ltd., respectively.
A full list of the affected ratings can be found at the end of this press
release.
RATINGS RATIONALE
The rapid and widening spread of the coronavirus outbreak, deteriorating
global economic outlook, falling oil prices, and asset price
declines are creating a severe and extensive credit shock across many
sectors, regions and markets. The combined credit effects
of these developments are unprecedented. The automotive sector
has been one of the sectors most significantly affected by the shock given
its sensitivity to consumer demand and sentiment.
More specifically, weaknesses in the companies' credit profiles,
including their exposure to final consumer demand for automobiles,
have left them vulnerable to shifts in market sentiment in these unprecedented
operating conditions, and the companies remain vulnerable to the
outbreak continuing to spread. Moody's regards the coronavirus
outbreak as a social risk under its ESG framework, given the substantial
implications for public health and safety. Today's actions
reflect the impact on the companies of the breadth and severity of the
shock, and the broad deterioration in credit quality it has triggered.
Moody's review for downgrade of the two Korean automakers considers
that demand for new vehicles will reduce meaningfully over the coming
months, especially in the EMEA and North American markets.
This is likely to extend through the early summer at least, with
a reasonable recovery from the low points commencing at that time.
Moody's current assumptions are that global demand will shrink by
about 14% for all of 2020, and could be down in the range
of 30% for the second quarter.
Accelerating incidence of the coronavirus across the US and EMEA could
lead to even more extended production shutdowns and a much delayed recovery
on unit sales for Hyundai Motor and Kia Motors. Production facilities
in Europe and North America are mostly closed, as are factories
along the broader auto supply chain. This should enable field inventories
of unsold vehicles to be somewhat restrained, but also leads to
potential for meaningful disruption even once new vehicle production starts
back up, unless the original equipment manufacturers (OEMs) and
the extended supply chain cooperate carefully.
Even without production for a couple of months, there will be an
overhang of inventory which could lead to considerable manufacturer incentives
before the new model year shipments. For now, Moody's assumes
a reasonable pace of recovery of demand as the third quarter develops,
however the risk to the downside is considerable and further downside
scenarios around the severity and duration of the pandemic are uncertain.
For the Chinese market, where the three Chinese automakers derive
most of their unit sales, Moody's expects auto sales to steadily
improve from the level in first quarter. Nevertheless, this
market also faces downside risks in terms of the pace and magnitude of
the demand recovery.
Moody's review will focus on (1) the impact of the coronavirus outbreak
on the manufacturing operations of the companies, including their
supply chains; (2) the impact on demand in the companies' key
global markets amid subdued consumer sentiment and governments'
containment measures; (3) any government measures to support corporates
and consumers in the companies' main markets, as well as the
companies' own countermeasures; and (4) the companies'
liquidity profiles.
The review will on the basis of these factors make an assessment around
the companies' ability to restore their credit metrics to levels
that support their current ratings and of the timing of such recovery.
Moody's expects to conclude the review within 90 days.
In addition to the disruption from the outbreak of the coronavirus,
the auto industry also faces a number of longer-term challenges
related to environmental, social and governance (ESG) factors and
megatrends.
These include (1) increasing environmental standards, stricter emissions
regulation and electrification; (2) autonomous driving and connectivity;
(3) increasing vehicle safety regulations; and (4) new market entrants.
Moody's expects automakers will need to make sizeable investments
over the coming years to weather these challenges, in turn constraining
their ability to turn around profit and cash flow generation.
While Moody's believe the companies' roadmap to become compliant
with stricter emissions regulation is largely achievable, compliance
costs have also materially increased in some regions. In addition,
the success of the roadmap will hinge to some degree on consumer acceptance
and pricing policies of peers that are not in the control of individual
automakers.
The principal methodology used in these ratings was Automobile Manufacturer
Industry published in June 2017. Please see the Rating Methodologies
page on www.moodys.com for a copy of this methodology.
List of Affected Credit Ratings
..Issuer: Hyundai Motor Company (Lead Analyst:
Wan Hee Yoo)
.... Long-term Issuer Rating (Foreign
and Local Currency), Placed on Review for Downgrade, currently
Baa1
....Outlook, Changed To Rating Under
Review From Negative
..Issuer: Kia Motors Corporation (Lead Analyst:
Wan Hee Yoo)
.... Long-term Issuer Rating (Foreign
and Local Currency), Placed on Review for Downgrade, currently
Baa1
....Long-term Senior Unsecured (Foreign
Currency), Placed on Review for Downgrade, currently Baa1
....Outlook, Changed To Ratings Under
Review From Negative
..Issuer: Dongfeng Motor Group Company Limited (Lead
Analyst: Gerwin Ho)
.... Long-term Issuer Rating (Foreign
and Local Currency), Placed on Review for Downgrade, currently
A2
....Outlook, Changed To Rating Under
Review From Stable
..Issuer: Dongfeng Motor (Hong Kong) Intl Co.,
Ltd. (Lead Analyst: Gerwin Ho)
....Backed Long-term Senior Unsecured
(Foreign Currency), Placed on Review for Downgrade, currently
A2
....Outlook, Changed To Rating Under
Review From Stable
..Issuer: Beijing Automotive Group Co.,
Ltd. (Lead Analyst: Gerwin Ho)
.... Long-term Issuer Rating (Foreign
and Local Currency), Placed on Review for Downgrade, currently
Baa2
....Outlook, Changed To Rating Under
Review From Negative
..Issuer: BAIC Inalfa HK Investment Co.,
Limited (Lead Analyst: Gerwin Ho)
....Backed Long-term Senior Unsecured
(Foreign Currency), Placed on Review for Downgrade, currently
Baa2
....Outlook, Changed To Rating Under
Review From Negative
..Issuer: Geely Automobile Holdings Limited (Lead
Analyst: Gerwin Ho)
.... Long-term Issuer Rating (Foreign
and Local Currency), Placed on Review for Downgrade, currently
Baa3
....Long-term Senior Unsecured (Foreign
Currency), Placed on Review for Downgrade, currently Baa3
....Outlook, Changed To Ratings Under
Review From Stable
REGULATORY DISCLOSURES
For ratings issued on a program, series, category/class of
debt or security this announcement provides certain regulatory disclosures
in relation to each rating of a subsequently issued bond or note of the
same series, category/class of debt, security or pursuant
to a program for which the ratings are derived exclusively from existing
ratings in accordance with Moody's rating practices. For ratings
issued on a support provider, this announcement provides certain
regulatory disclosures in relation to the credit rating action on the
support provider and in relation to each particular credit rating action
for securities that derive their credit ratings from the support provider's
credit rating. For provisional ratings, this announcement
provides certain regulatory disclosures in relation to the provisional
rating assigned, and in relation to a definitive rating that may
be assigned subsequent to the final issuance of the debt, in each
case where the transaction structure and terms have not changed prior
to the assignment of the definitive rating in a manner that would have
affected the rating. For further information please see the ratings
tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Moody's considers a rated entity or its agent(s) to be participating
when it maintains an overall relationship with Moody's. Unless
noted in the Regulatory Disclosures as a Non-Participating Entity,
the rated entities are participating and the rated entities or their agent(s)
generally provide Moody's with information for the purposes of its
ratings process. Please refer to www.moodys.com for
the Regulatory Disclosures for each credit rating action under the ratings
tab on the issuer/entity page and for details of Moody's Policy
for Designating Non-Participating Rated Entities.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
The below contact information is provided for information purposes only.
Please see the ratings tab of the issuer page at www.moodys.com,
for each of the ratings covered, Moody's disclosures on the
lead rating analyst and the Moody's legal entity that has issued
the ratings.
The person who approved Hyundai Motor Company and Kia Motors Corporation's
credit ratings is Chris Park, Associate Managing Director,
Corporate Finance Group, 852 3758 1350, 852 3551 3077.
The person who approved Beijing Automotive Group Co., Ltd.,
BAIC Inalfa HK Investment Co., Limited, Dongfeng Motor
Group Company Limited, Dongfeng Motor (Hong Kong) Intl Co.,
Ltd., and Geely Automobile Holdings Limited's credit ratings
is Clement Wong, Associate Managing Director, Corporate Finance
Group, 852 3758 1350, 852 3551 3077.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
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
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
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
