RAM Ratings has reaffirmed the AAA/stable rating of Hyundai Capital Services, Inc’s (the Company) RM2 billion MTN Programme (2008/2028).

Published on 15 July 2016

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 Group. In 1Q 2016, Hyundai Motor’s and Kia Motors’ collective interest in Hyundai Capital augmented to 79.8% following the acquisition of a 23.3%-stake from GE Capital; the latter is exiting the consumer finance business. Hyundai Capital’s rating is anchored on our expectation that extraordinary support from Hyundai Motor will be readily extended if required.

RAM expects Hyundai Capital to still dominate the new car financing of Hyundai-Kia vehicles, although its market share has been heavily dented by intense competition from banks and other financing companies, including non-traditional players such as credit card companies. The Company charted a 7% receivables growth in 2015, primarily fuelled by new car financing. Its receivables base has stagnated in the last few years, amid its efforts to address the weakening credit quality of its financing portfolio.

Cautious lending and stricter underwriting had improved the Company’s asset-quality indicators, a development which we expect Hyundai Capital to be able to maintain in the near term. Gross impaired financing ratio eased to 2.5% as at end-March 2016 (end-December 2014: 3.7%; end-December 2013: 4.0%) while leading indicators such as the 30+day delinquency ratio has shown consecutive q-o-q decline since 2Q 2014. While still high, credit cost ratio has eased in tandem, to an annualised 1.0% in 1Q FY Dec 2016 from 2.2% in fiscal 2013. Nonetheless, the Company’s credit quality indicators are weaker than those of its leasing peers.

Hyundai Capital has a sound funding mix and sufficient liquidity buffers. The Company’s reliance on short-term wholesale funding is manageable. Funding sources are also diversified and the Company has made good progress in terming out its debt maturities. Its close association with Hyundai Motor and the expectation of parental support should also facilitate its access to capital markets and mdoerate refinancing risk. In the near term, competition as well as the low interest rate environment, will constrain the Company’s profitability. The Company’s annualised ROA increased to 2.0% in 1Q FY Dec 2016, driven by lower provisioning costs. Moving forward, this is expected to remain below its historical 2.4%-2.5%.

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