[THE INVESTOR] Standard & Poor’s Global Ratings downgraded its ratings for Hyundai Motor and sister firm Kia Motors on Oct. 31, a week after Korea’s largest carmaker saw its third-quarter profit plunge by two-thirds.
The agency has cut their ratings by one notch, from A- to BBB+, saying “their weakened profitability is unlikely to notably reverse over the next 12-24 months.”
It pointed out that increased macroeconomic volatility, including currency and trade tensions, quality related costs, tightening environmental requirements and conflicts with labor unions were major risks for the carmakers to recover profits.
S&P also lowered the rating of parts making affiliate Hyundai Mobis, dragged down by Hyundai and Kia’s “stagnant performance. ”
Mobis’ business competitiveness will continue to be tied to its affiliate carmakers, it noted.
The credit ratings of the financial arms Hyundai Card and Hyundai Capital were also downgraded from BBB+ to BBB, and A- to BBB+, respectively. The automaker’s logistics subsidiary was the only one to avoid a rating cut. S&P raised its outlook on Hyundai Glovis from stable to positive and maintained the BBB+ rating.
The agency, however, gave a stable outlook for Hyundai, Kia and Mobis, saying they are expected to maintain sound balance sheets and net cash position over the next couple of years.
The move follows a similar downgrade by local agencies, including Korea Ratings, which revised the outlook from stable to negative.
Last week, Hyundai reported worse than expected third-quarter earnings, hit by rising costs for recalls in the US and weaker emerging market currencies. Its operating profit plummeted 76 percent on-year to 288.9 billion won (US$253.69 million). Net profit plunged 67 percent to 306 billion won in the period, although sales rose 1 percent to 24.433 trillion won.
Meanwhile, Kia made a turnaround posting 427 billion won operating profit from 117.3 billion won in the same period last year, but failed to meet market expectations.
By Ahn Sung-mi (firstname.lastname@example.org)