The affirmation reflects the belief that Hyundai Motor, Korea’s largest automaker, will not be called upon to provide financial support to the Hyundai Group companies that are facing liquidity problems — namely, Hyundai Investment Trust & Securities Co. Ltd., Hyundai Engineering & Construction Co. Ltd., and Hyundai Merchant Marine Co. Ltd.
Hyundai Motor’s ties to other Hyundai Group companies have loosened in anticipation of the company’s imminent disaffiliation from the group, which was formally agreed upon by the company’s board of directors on May 17, 2000. The strategic task force of the Hyundai Group also publicly announced on May 25 that Hyundai Motor will apply for disaffiliation to the Fair Trade Commission sooner than the original timeframe, at least by the end of June 2000.
To satisfy the disaffiliation requirements of Korea’s Fair Trade Act, Hyundai Motor is actively disposing of its equity holdings in Hyundai Group companies, bringing its stake to less than 3% for listed companies and 15% for unlisted companies. Also, for the disaffiliation to obtain approval, any Hyundai Motor directors holding dual directorship in other Hyundai Group companies must resign from such positions. Under the disaffiliation process, which is being closely monitored by the government, it is unlikely that Hyundai Motor could offer financial support to any troubled group companies outside the automotive division.
Hyundai Motor’s rating was raised to single-‘B’-plus from single-‘B’ on Nov. 16, 1999, reflecting strong recovery in the company’s operating and financial performance, better-than-anticipated progress in integrating the operations of Kia Motors Corp., and the company’s successful efforts to strengthen its capitalization through equity issuance.
The rating could be raised within a few quarters if Korea’s economy and auto market see greater stability and if Hyundai Motor continues to improve its operating and financial performance and adopts a more conservative financial policy. Standard & Poor’s is also closely monitoring the likelihood that Hyundai Motor will forge strategic alliances with foreign partners, which could benefit its credit quality, as well as the company’s potential participation in the bidding for ailing rival Daewoo Motor Corp., which could adversely affect Hyundai Motor’s credit standing. –CreditWire