S&P: outlooks on Hyundai Motor Group companies to positive

(The following was released by the rating agency)

-- We revised to positive from stable the outlook on the long-term corporate credit ratings on Hyundai Motor, Kia Motors, Hyundai Mobis and Hyundai Glovis, and we affirmed the 'BBB' long-term corporate credit and debt ratings on the companies.

-- The positive outlooks reflect our view that the four companies will continue to enhance their financial profiles, through stronger market positions and improved profitability.

-- We assigned our 'BBB' rating to Kia Motors Corp.'s proposed issue of U.S.-dollar-denominated senior unsecured bonds.

June 7, 2011--Standard & Poor's Ratings Services today revised to positive from stable the outlook on its 'BBB' long-term corporate credit ratings on Korea-based Hyundai Motor Co. (HMC), Kia Motors Corp. (Kia), Hyundai Mobis Co. Ltd. (Mobis), and Hyundai Glovis Co. Ltd. (Glovis). At the same time, we affirmed our long-term corporate credit ratings on the four companies and affirmed our 'BBB' debt rating on HMC's two guaranteed bond issuances. We have changed Kia's standalone credit profile (SACP) to 'bbb-' from 'bb+' and have equalized its ratings with those of HMC, given their close shareholdings and strong business integration. We also assess Mobis's SACP to be 'bbb', which is the same as its corporate credit rating, and Glovis' to be 'bbb', the same as its corporate credit rating.

Also, we assigned our 'BBB' rating to Kia Motors Corp.'s (Kia; BBB/Positive/--) proposed issue of U.S.-dollar-denominated senior unsecured bonds. The rating is subject to our review of the terms and conditions of the final issuance documentation. In Standard & Poor's opinion, the bonds will not materially affect Kia's financial risk profile given the robust free operating cash flow we expect it to generate this year.

The outlook revision on both HMC and Kia, for which we have equalized the ratings, reflects our view that the two automakers will continue to enhance their financial profiles over the next 12-18 months based on strengthening global market positions and improving profitability. We believe this progress is largely structural and based on fundamental enhancements that both automakers have made globally to product quality, brand, cost reductions, and distribution networks.

We expect HMC and Kia to continue to achieve robust sales growth and gain global market share given the largely structural improvements they have made. Still, their recently accelerated operational achievements were partly attributable to disruptions in supply chains in Japan since mid-March. These disruptions negatively affected the manufacturing output of Japanese rivals, and currency exchange rates favored HMC and Kia and hurt their Japanese rivals. HMC and Kia's combined market share in the U.S. jumped to 10.1%, a record high, in May. Also, their combined U.S. retail sales for January to May this year grew 35% year on year, far exceeding the overall industry's 14% growth during the same period. Even before the disruptions that hit Japan this year, however, HMC and Kia's combined global market share rose, from 6.5% in 2008 to 7.7% in 2009 and 8.2% in 2010. In addition, we expect that HMC and Kia will continue to improve profitability-through the achievement of a higher average sales price per unit, lower sales incentives, and lower inventory related to the aforementioned structural improvements.

The outlook revisions on Mobis, an auto supplier, and Glovis, a logistics company, mainly reflect our expectations that these companies will be able to strengthen their business risk profiles as HMC and Kia improve their operational outlooks--their captive customers accounting for 80% to 90% of Mobis and Glovis' total revenues--and maintain their solid financial risk profiles.

Given the ratings equalization on the two companies, we may raise our ratings on HMC and Kia if HMC's adjusted debt to EBITDA stays below 1.5x for a protracted period. Positive rating factors necessary for upgrades of HMC and Kia, in addition to improved profitability or global market positions, include more stable labor relations leading to higher operating efficiency and more discipline in financial policy to prevent aggressive expansion into nonauto industries. Conversely, we may revise the outlooks on the ratings of both companies back to stable if HMC's adjusted debt to EBITDA exceeds 2.0x for a protracted period. In addition to a significant erosion in profitability or global market position, negative rating factors include major additional investments, especially in nonauto industries, and deterioration in operating efficiency due to lack of stability in their labor relationships.

Read More: http://www.reuters.com/article/2011/06/07/markets-ratings-hyundaimotorgroup-idUSWNA035520110607

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