HYUNDAI MOTOR COMPANY
Fitch Ratings has affirmed
The Outlook on the Long-Term IDR is Stable.
Fitch has assigned a Shareholder Support Rating (SSR) of 'bbb' to HCC, in line with our updated Non-Bank Financial Institutions Criteria, dated
Key Rating Drivers
SSR Drives Long-Term IDR: HCC's Long-Term IDR is driven by its SSR. It reflects our view that there is a high likelihood that HCC would receive extraordinary support from its parent,
The Short-Term IDR is the lower of two choices in the rating correspondence table, reflecting a potential impediment to the prompt flow of funds from the non-financial corporate parent to the credit-card subsidiary, which could require more substantial liquidity in times of severe stress due to large commitments extended to credit-card holders. It also takes into consideration that HCC is of lower priority than the parent's core subsidiaries, such as
Strategically Important Subsidiary: We believe HCC is a strategically important subsidiary of HMC. It produces synergies with
Parent Linkages Underpin Support Prospects: The two automakers and
Moderate Financial Profile Weakening: The rapid tightening of monetary condition appears unlikely to deteriorate HCC's intrinsic credit profile significantly. Asset quality weakening would be moderate in light of HCC's increased focus on prime-quality borrowers over the several years and the authorities' sustained support measures for vulnerable borrowers. Higher funding costs will weigh on profit in the near term, but resilient credit-card transaction volumes and HCC's measures to reduce costs are likely to mitigate the profitability decline.
Buffers to Withstand Challenges: We believe HCC has adequate buffers to withstand the capital market dislocation, which was temporarily seen in the domestic funding market recently. It has a reasonable liquidity buffer, evident in its funding duration exceeding the average asset maturity, the moderate use of secured lending and an adequate level of available liquidity, with its cash, liquid assets and committed credit lines fully covering the debt maturing in six months at end-3Q22. Its debt/tangible equity ratio (5.7x in 3Q22) should remain steady as asset growth slows.
Rating Sensitivities
Factors that could, individually or collectively, lead to negative rating action/downgrade:
Negative action on HMC's Long-Term IDR would prompt a similar rating action to HCC's Long-Term IDR and SSR. For the rating drivers and sensitivities of HMC, see the latest rating action commentary 'Fitch Affirms Hyundai Motor and Kia at 'BBB+'; Outlook Stable', published on
HCC's ratings could also be downgraded if the group's stake in the credit card operator, held by HMC and its affiliates, declines to the extent that a third-party minority shareholder's influence on the credit card operator significantly increases (eg less than 50%), or if its operational linkages to the group weaken materially. Any downgrade resulting from the parent's weakening ability or propensity to support would be limited to one notch, assuming no material change to HCC's standalone credit profile.
A significant deterioration in HCC's financial profile, resulting from a significant weakening of the operating environment or a more aggressive risk appetite, could also negatively affect the rating, especially if it puts an excessive burden on HMC's financial profile or renders the subsidiary less important to the parent's business strategy.
The Short-Term IDR would be downgraded to 'B' if the Long-Term IDR was downgraded to the 'BB' category.
Factors that could, individually or collectively, lead to positive rating action/upgrade:
Positive action on HMC's Long-Term IDR would prompt a similar action to HCC's Long-Term IDR and SSR.
HCC's ratings could also be upgraded upon a substantial improvement in its standalone profile. However, we do not foresee this in the near term, given an increased pressure on its financial profile stemming from the macroeconomic headwinds.
The Short-Term IDR could be upgraded to 'F2' if the Long-Term IDR was upgraded to 'BBB+'.
Best/Worst Case Rating Scenario
International scale credit ratings of Financial Institutions and Covered Bond issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from '
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
Public Ratings with Credit Linkage to other ratings
The ratings on HCC are driven by institutional support from HMC. A change in Fitch's assessment of HMC's ratings would automatically result in a change in HCC's ratings.
ESG Considerations
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg
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