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S&P affirms Hyundai, Kia on sound balance sheets

S&P Global Ratings on Jan. 21 affirmed the BBB+ long-term issuer credit ratings of Hyundai Motor Co. and Kia Motors Corp., citing the South Korean carmakers' sound balance sheets.

The rating agency maintained its stable outlook on the two Hyundai Group companies to reflect its view that Hyundai and Kia will be able to gradually recover their profitability while maintaining sound balance sheets over the next 12 to 24 months despite uncertainties in the competitive global auto market.

Ratings said it expects the group's turnaround that started in 2019 to carry on in 2020-2021. The agency noted that Hyundai and Kia's performance during the first nine months of 2019 exhibited signs of recovery from the weak levels in 2018. In November 2018, Ratings downgraded Hyundai and Kia to BBB+ from A- due to the group's weakened profitability and subdued operating performance.

Most recently, the agency highlighted Hyundai and Kia's good geographic diversity, which Ratings believes will help the group maintain its market position over the next 12 to 18 months. This is despite Ratings' anticipated slowdown in sales of light vehicles globally.

"Global economic growth is likely to continue to moderate over the next one to two years as weak manufacturing activity and geopolitical tensions hurt consumer confidence especially in the U.S., China, and Europe," the rating agency said.

Ratings added that more stringent emission standards in Europe would put pressure over Hyundai and Kia's overall business in the region as Europe accounts for 14% of the group's total sales. However, the agency forecasts recovering sales in the U.S. and Hyundai and Kia's well-established position in emerging markets would offset the negative pressure.

The U.S. accounts for 18% of the group's sales, while emerging markets, including India, South America, Russia and Southeast Asia, make up 36% of the group's total sales. Meanwhile, in China, where the group generates 15% of its total sales, Ratings said Hyundai and Kia's operations are unlikely to recover over the next two years.

Ratings said it could raise the Hyundai Group's ratings if EBITDA margin nears 10%. A downgrade is also likely if Hyundai and Kia's combined EBITDA margin stays below 6% on a sustained basis, among other factors.

This S&P Global Market Intelligence news article may contain information about credit ratings issued by S&P Global Ratings, a separately managed division of S&P Global. Descriptions in this news article were not prepared by S&P Global Ratings.