RAM Ratings reaffirms AAA rating of Hyundai Capital’s MTN, with stable outlook

Published on 04 July 2012

RAM Ratings has reaffirmed the AAA rating of Hyundai Capital Services, Inc’s (“Hyundai Capital” or “the Company”) Medium-Term Notes (“MTN”) issued under its RM2 billion MTN Programme (2008/2028); the long-term rating has a stable outlook.

Hyundai Capital is the leading automobile financier in South Korea, commanding the lion’s share of 88% of new car financing as at end-December 2011. The Company’s auto-related businesses remained the bulk of its operations, although its personal lending and mortgage loans provide some degree of business diversification. Meanwhile, Hyundai Capital continues to benefit from the strong financial support from its major shareholders – Hyundai Motor Company (“Hyundai Motor”, 56.5%) and General Electric Capital Corporation (“GE Capital”, 43.3%). In addition to the USD1 billion credit line extended by GE Capital to Hyundai Capital, the former’s commitment is also underscored by its active involvement in the Company’s daily operations.

Hyundai Capital’s gross impaired-loan ratio had risen to 2.7% as at end-March 2012. The deterioration in the Company’s asset quality in 2011 was mainly due to the used-car financing and personal loan segments. While Hyundai Capital’s asset quality had weakened against our expectations, we anticipate it to stabilise in the near to intermediate term as management places more emphasis on risk management than asset growth. We note that the “30 days past due” ratios of some business segments improved in 1Q 2012.

Meanwhile, the Company’s profit performance remained commendable in fiscal 2011, with a pre-tax profit of KRW663 billion despite higher loan-loss provisions. While keener competition may affect its margins in the intermediate term, we expect Hyundai Capital to remain a dominant player in the automobile instalment-financing market in South Korea.

Given that Hyundai Capital cannot accept deposits from the public, it relies heavily on wholesale funding to support its lending activities. While this exposes it to volatile market conditions and roll-over risk, Hyundai Capital has a large pool of unutilised credit lines from banks and GE Capital, which serve as contingency funding facilities. As at-December 2011, the Company maintained a comfortable gearing ratio of 6.7 times and a satisfactory capital-adequacy ratio of 13%. All said, we expect support from GE Capital and Hyundai Motor to be readily extended should the need arise.

Media contact
Kwan Ji-Ling
(603) 7628 1115
jiling@ram.com.my