RAM Ratings reaffirms Hyundai Capital's AAA/stable issue rating

Published on 01 October 2014

RAM Ratings has reaffirmed the AAA/stable rating of Hyundai Capital Services, Inc’s (the Company) RM2 billion MTN Programme (2008/2028). The rating reflects Hyundai Capital’s position as 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 Hyundai-Kia Automotive Group or the Group). While we have observed deterioration in its asset quality and profitability indicators, Hyundai Capital’s rating remains anchored on our expectation that extraordinary support from Hyundai Motor will be readily extended if required, as has happened in the past.
Hyundai Capital has made good progress in diversifying its funding sources and terming out its debt maturities. As at end-March 2014, long-term debts comprised 80.6% of its funding sources while its gearing ratio stood at a comfortable 5.4 times. We believe its close association with Hyundai Motor and the expectation of parental support should moderate any refinancing risk.
Meanwhile, Hyundai Capital’s asset quality and profitability indicators have weakened. As at end-December 2013, the Company’s gross-impaired financing and credit-cost ratios had risen to a respective 4.0% and 2.2%, from 3.3% and 1.9% a year earlier. This reflects its borrowers’ weaker repayment ability amid the sluggish economy, as well as the Company’s more stringent classification criteria. On a strict 90-day-past-due criterion, the Company’s delinquency rate stood at around 1.1%-1.5% over the past 2 years. Recent regulatory changes aimed at enhancing pricing transparency, intensified competition in the new-car financing segment and increased reserving needs have also added pressure on profitability. As a result, the Company’s annualised ROA has been reduced to less than 1.0% in 1Q FY Dec 2014, in comparison to its historical level of 2.4%-2.5%.

Media contact
Chan Yin Huei
(603) 7628 1180
yinhuei@ram.com.my