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Rating Action:

Moody's upgrades Kia to Baa3 with stable outlook

21 Sep 2010

Hong Kong, September 21, 2010 -- Moody's Investors Service has upgraded Kia Motors Corp's corporate family rating to Baa3 from Ba1 and withdrawn the rating. At the same time, Moody's has assigned Kia a Baa3 issuer rating. This concludes Moody's review for possible upgrade initiated on 3 August 2010. The rating outlook is stable.

RATINGS RATIONALE

"The rating action mainly reflects a one-notch upgrade of Kia's standalone rating to Ba2 from Ba3 and an ongoing two-notch uplift from the high likelihood of parental support from Hyundai Motors Company ("HMC", Baa2/Stable). The upgrade in the standalone rating results from a rapid improvement in Kia's competitive position and financial profile, underpinned by the success of its new models," says Chris Park, a Moody's Vice President/Senior Analyst.

Kia has strongly outperformed its global peers since 2009, with its global unit sales growing 17% in 2009 and a further 35% YoY in 1H10. The robust growth has been supported by the success of its ambitious new models, which Moody's views as being the result of structural improvements in its product quality/renewal and design capability.

These factors -- together with the fact that its new models are very competitive in the Korean market and will also be launched in other major markets -- suggest that the growth in its market share will continue over the short to medium term.

Kia's previously weak financial profile has exhibited a dramatic turnaround since 2009, propelled by much higher utilization rates, a significant growth in average selling prices, and a sizeable working capital surplus, which has been driven in turn by a drop in inventory. Earnings growth has also benefited from favorable exchange rates.

In this regard, in 2010, debt/EBITDA will likely improve to about 2x from 4.3x a year ago and retained cash flow ("RCF")/net debt to 70-80% from 24%, thereby solidly positioning the company at its Ba2 standalone rating.

Its profitability will remain vulnerable to volatile exchange rates, and its working capital deficits could also grow, leading to an increase in short-term debt. Nonetheless, Moody's expects Kia's key credit metrics over the next couple of years to remain largely consistent with the levels in 2010, in light of its strengthened earnings, competitive new models, and the expected gradual increase in global auto demand.

The rating action also factors in a substantial improvement in Kia's liquidity profile. Its maturing debt over the next 12 months had shrunk by about 60% to KRW2.4 trillion as of August 2010 from end-2009. This debt can be comfortably met by its liquidity holdings of KRW2.7 trillion and back-up credit lines.

The two-notch uplift from parental support continues to reflect Kia's high operational integration with and its strategic importance to HMC.

The stable outlook reflects Moody's expectation that Kia's overall business and financial profiles will remain solid for its standalone rating, underpinned by its robust auto sales.

The ratings could be upgraded if Kia's standalone rating is upgraded by the company establishing a longer track record to sustain its current strong financial profile, with RCF/net debt of above 35-45% and debt/EBITDA of less than 3-3.5x, and continued progress in the growth of its global market share.

The rating could be downgraded if KMC witnesses a substantial deterioration in its operating cash flow, as a result of worse-than-anticipated market conditions, or it is unable to outperform the market and contain its working capital deficits. Downward pressure may also arise from a material deterioration in its liquidity position. This development could be evidenced by RCF/net debt below 20-25% and debt/EBITDA above 4.5-5x on a sustained basis.

Moody's last rating action on Kia was taken on August 3, 2010, when it placed Kia's Ba1 rating under review for possible upgrade.

The principal methodologies used in rating Kia was Moody's Rating Methodology for Global Automobile Manufacturer Industry, published in December 2007. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found on Moody's website.

Kia, headquartered in Seoul, Korea, is Korea's second largest automotive maker. The company is part of Hyundai Motor Group which is the world's fifth largest and Korea's dominant automotive maker. Kia sold 1.7 million auto units in 2009.

REGULATORY DISCLOSURES

Information sources used to prepare the credit rating are the following: parties involved in the ratings, parties not involved in the ratings, public information, confidential and proprietary Moody's Investors Service's information.

Moody's Investors Service considers the quality of information available on the issuer or obligation satisfactory for the purposes of maintaining a credit rating.

MOODY'S adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources MOODY'S considers to be reliable including, when appropriate, independent third-party sources. However, MOODY'S is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see ratings tab on the issuer/entity page on Moodys.com for the last rating action and the rating history.

The date on which some Credit Ratings were first released goes back to a time before Moody's Investors Service's Credit Ratings were fully digitized and accurate data may not be available. Consequently, Moody's Investors Service provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see the Credit Policy page on Moodys.com for the methodologies used in determining ratings, further information on the meaning of each rating category and the definition of default and recovery.

Hong Kong
Chris Park
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service Hong Kong Ltd.
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077

Hong Kong
Gary Lau
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service Hong Kong Ltd.
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SUBSCRIBERS: (852) 3551-3077

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Moody's upgrades Kia to Baa3 with stable outlook
No Related Data.
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