MEDIA / H-Story

– “Continuously Increasing Business Income While Real Financial Burden Lower Than the Indicator”

Hyundai Corporation

 

Korean credit rating agencies have raised Hyundai Corporation’s rating to “A” (stable). Given its stable business profitability and favorable financial stability, the outlook for its future credit rating is evaluated to be stable.

According to credit rating industry sources, Korea Ratings and NICE Investors Service awarded “A-“ to Hyundai Corporation (HC) last year. This year, Korea Investors Service gave A to Hyundai Corporation, leading experts to expect that the two existing credit rating agencies will also raise HC’s credit rating.

Korea Investors Service upgraded HC’s credit rating, considering its business stability, income creation, and real financial structure based on the Hyundai Group as a whole.

According to Korea Investors Service, based on its long-running business ties with the Hyundai Group as a whole, HC has established favorable business stability. In many areas including steel, automobiles, auto components, petrochemicals, shipbuilding, and EPC equipment, HC has been trading a variety of products.

Since it was spun off from Hyundai Heavy Industries to become an independent entity in 2016, HC has led its transactions with the Hyundai Group as a whole to account for about 60% of its whole business, maintaining close ties with the conglomerate including the Hyundai Motor Group and the HD Hyundai Group. HC has also cooperated with other regular clients including POSCO and SK Energy.

Even though its business profitability is not yet high enough, HC has recently expanded its income sharply. Focusing on trading, it has posted an operating profit margin of about 1% but since 2021, it has reported significantly improved performances due to more favorable business environments in major regions.

Last year, HC successfully enhanced its performances due mainly to higher steel prices, a rise in the number of automobiles exported to the CIS, and new partnerships in global bunkering in the sphere of petrochemicals. In 2022, HC’s sales and operating profit jumped by 62% and 91%, respectively, to all-time highs of KRW 6.1269 trillion and KRW 66.8 billion.

In the first quarter of this year, HC achieved favorable results backed by a rise in steel sales in high-income markets and new partnerships in automobiles and petrochemicals, despite unfavorable business conditions including falling oil prices and a reduction in trade volume.

HC’s non-operating income has recently stabilized. By 2019, its non-operating balance had been in deficit due to bad debt allowances for clients and shipping companies, bad debt expenses for oil block 11-1 in Vietnam, and the US’ anti-dumping tariffs against steel pipes.

However, the real estate fund that has been invested since 2019 has continuously posted profits, with Oman and Qatar LNG generating a higher income because of a rise in natural resource prices. As a result, the non-operating balance has been in surplus for the past three years.

According to Korea Investors Service, HC’s real financial stability is deemed to be favorable. Depending on the characteristics of trading businesses, HC’s financial balance has been greatly affected by fluctuations in working capital by year.

Korea Investors Service explained, “In 2021, HC’s financial burden in working capital grew significantly due to its external expansion, increasing net debts. However, in 2022, improved income creation capabilities and less financial burden in working capital allowed HC to reduce its loans.”

HC’s superficial financial indicator is deemed to be far from satisfactory. HC’s consolidated debt ratio for the end of the first quarter of this year was as high as 335.5%. Korea Investors Service said, “The share of trade finance in external loans is high, with its investment in the real estate fund characterized by a high debt ratio being attributed to accounting reasons resulting from the right of first refusal. Against this backdrop, HC’s real financial burden is deemed to be lower than the indicator.”

 

EBN
June 26, 2023