Hyundai Motor Securities Upgraded to 'AA-' Credit Rating by NICE Investors Service

[Asia Economy Reporter Ji-hwan Park] Hyundai Motor Securities announced on the 17th that NICE Credit Rating upgraded its credit rating from the previous 'A+ (Positive)' to 'AA- (Stable)'. This upgrade reflects improved profit-generating capabilities through diversification of revenue structure, a decrease in contingent liabilities, and sound capital adequacy.

This is the second time Hyundai Motor Securities' credit rating has risen to 'AA-', following Korea Ratings in December last year. Korea Enterprise Ratings also upgraded Hyundai Motor Securities' long-term credit rating outlook from 'Stable' to 'Positive' in August last year. Expectations have increased that Hyundai Motor Securities could receive an AA- credit rating from all three major domestic credit rating agencies.

NICE Credit Rating evaluated that Hyundai Motor Securities' profit-generating ability has improved based on its diversified revenue structure. Despite increased financial market volatility due to the spread of COVID-19, the company demonstrated excellent profitability last year through balanced performance in the IB division, asset management, and brokerage services. Since 2015, it has maintained a return on assets (ROA) of around 1.0%, and has shown a gradual improvement in profitability since 2019, which also contributed positively.

According to the Financial Supervisory Service's electronic disclosure system, Hyundai Motor Securities' consolidated operating profit last year increased by 19.3% year-on-year to 117.4 billion KRW, and net income rose by 17.4% to 84.3 billion KRW during the same period. Both operating profit and net income reached record highs since the company's founding.

NICE Credit Rating also highlighted Hyundai Motor Securities' conservative risk management stance. As of the end of last year, the company's contingent liabilities stood at 615.3 billion KRW, with a contingent liabilities-to-equity ratio of 57.8%, which is below the industry average of 64.7%. Through group-level plans to reduce contingent liabilities, the scale of contingent liabilities has significantly decreased from 1.2 trillion KRW at the end of March 2015.

Of the 1.3 trillion KRW in outstanding derivative-linked securities issued by Hyundai Motor Securities at the end of last year, the balance of principal non-guaranteed products (ELS·DLS), which carry relatively higher operational risk, was only 305.3 billion KRW, accounting for just 28.7% of equity. Additionally, since 2017, all principal non-guaranteed derivative-linked securities have been operated with back-to-back hedging, limiting the actual risk related to derivative-linked securities.

Sound capital adequacy was also positively evaluated. Hyundai Motor Securities has maintained good capital adequacy through the issuance of 130 billion KRW in subordinated bonds in 2018 and a paid-in capital increase (RCPS 103.6 billion KRW) in October 2019. As of the end of last year, the company's consolidated net capital ratio (NCR) stood at an excellent level of 507.5%, and the liquidity ratio (based on residual maturity within 3 months) was 127.8%, indicating no liquidity risk.

NICE Credit Rating forecasted that Hyundai Motor Securities will continue to maintain excellent capital adequacy in the future, considering that it has maintained an operating net capital to total risk ratio above 250% over the past five years, along with its conservative risk management stance and profit-generating power.

A Hyundai Motor Securities official stated, "The upgrade to 'AA-' by two of the three major domestic credit rating agencies recognizes our stability and future growth potential," adding, "We will continue to be a trusted company by our customers through thorough risk management and stable profit generation."

This content was produced with the assistance of AI translation services.