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

Published on 31 July 2013

RAM Ratings has reaffirmed the AAA long-term rating of Hyundai Capital Services, Inc’s (“Hyundai Capital” or “the Company”) RM2 billion MTN Programme (2008/2028), with a stable outlook. Hyundai Capital is the leading automobile financier in South Korea and the captive financier for the country’s largest automotive group - Hyundai Motor and Kia Motors (collectively known as “the Hyundai-Kia Automotive Group” or “the Group”). Hyundai Capital is owned by Hyundai Motor Company (“Hyundai Motor”, 56.5%) and General Electric Capital Corporation (“GE Capital”, 43.3%). Given Hyundai Capital’s importance to the Group, we believe that extraordinary support from Hyundai Motor will be readily extended if required. GE Capital has scaled back its operations since the global financial crisis, but it remains actively involved in Hyundai Capital’s daily operations and has also provided a credit line.

Apart from financing new cars, Hyundai Capital is also involved in the more lucrative financing of used cars, personal loans and residential mortgages. These segments pose higher credit risks, as evidenced by the Company’s weakening asset quality amid South Korea’s subdued economic climate. Hyundai Capital’s gross impaired-loan ratio had risen to 3.2% as at end-December 2012 (end-December 2011: 2.5%) while its credit-cost ratio stayed at a high 1.9%. Although this trend may continue through 2013, the deterioration in asset quality is expected to be moderate given the Company’s tightening underwriting efforts since mid-2011.

Meanwhile, Hyundai Capital’s reliance on wholesale funding exposes it to volatile market conditions and refinancing risk. That said, we expect shareholder support to be readily extended should the need arise. The Company has also made strides in improving its funding mix, with a gradual shift towards longer-term funding. As at end-December 2012, long-term debts made up 70% of Hyundai Capital’s total borrowing (end-December 2011: 65%) while its gearing ratio stood at a comfortable 5.6 times. 

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Amy Lo

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amy@ram.com.my