Hyundai Motor Securities Obtains 'AA' Ratings from All Three Major Credit Rating Agencies

[Asia Economy Reporter Park Jihwan] Hyundai Motor Securities announced on the 22nd that Korea Ratings' credit rating has been upgraded from the previous ‘A+/Positive’ to ‘AA-/Stable’. Hyundai Motor Securities has obtained an ‘AA-/Stable’ rating from all three major domestic credit rating agencies: Korea Ratings, NICE Investors Service, and Korea Investors Service.

Korea Investors Service raised Hyundai Motor Securities' long-term credit rating outlook from ‘A+/Stable’ to ‘A+/Positive’ in August last year, and on the 19th upgraded the credit rating from ‘A+’ to ‘AA-’. This upgrade reflects factors such as strengthening the business portfolio to enhance market position, improved profitability, excellent financial soundness, and strong profit-generating capability.

Korea Investors Service cited the enhancement of market position through strengthening the business portfolio as one of the factors for the credit rating upgrade. Hyundai Motor Securities' operating net income in 2020 was 300.6 billion KRW, and its market share was 1.6%, surpassing the average of the previous two years (2018?2019) of 223 billion KRW and 1.5%. This is attributed to a revenue structure with low profit and loss volatility due to changes in the financial environment, improved performance in the IB (investment banking) and asset management sectors, and increased bond management income through leverage expansion.

Korea Investors Service also paid attention to the trend of profitability improvement at Hyundai Motor Securities. Over the recent three years (2018?2020), Hyundai Motor Securities maintained excellent profitability with an average ROA (Return on Assets) and SG&A to operating net income ratio of 0.98% and 60.3%, respectively. In particular, in 2020, ROA reached 1.11%, and the SG&A to operating net income ratio was 52.9%, indicating very strong profitability. Hyundai Motor Securities' consolidated operating profit in 2020 increased by 19.3% year-on-year to 117.4 billion KRW, and net profit rose by 17.4% to 84.3 billion KRW, both reaching record highs since its establishment.

Asset soundness and capital adequacy are also positive. Hyundai Motor Securities' average proportion of low-risk assets (cash and deposits, government and special bonds, credit loans, etc., which have low default risk) and the ratio of net non-performing loans under watch to equity capital over the past three years are 46.0% and 0.6%, respectively, indicating excellent overall asset soundness. Hyundai Motor Securities has maintained capital adequacy at a high level through capital expansion, including issuing subordinated bonds (130 billion KRW) in 2018 and redeemable convertible preferred shares (RCPS) (103.6 billion KRW) in October 2019. As of the end of 2020, Hyundai Motor Securities' net capital ratio was 507.5%, and the adjusted leverage ratio was 4.5 times, which is lower than the average of 5.0 times for medium to large companies.

At the end of last year, Hyundai Motor Securities' contingent liabilities amounted to 615.3 billion KRW, with a contingent liability ratio to equity capital of 57.8%, indicating limited potential financial burden. It holds abundant liquidity gaps (liquid assets minus liquid liabilities) of around 1.3 trillion KRW, suggesting sufficient liquidity response capability even assuming the realization of contingent liabilities.

In particular, among the 1.36 trillion KRW of derivative-linked securities sold by Hyundai Motor Securities at the end of 2020, a large portion consists of principal-guaranteed products, and all principal-not-guaranteed products are issued with a back-to-back structure, indicating limited potential financial burden related to derivative-linked securities.

Korea Investors Service explained Hyundai Motor Securities' future outlook by stating, "There is no proprietary hedge ELS exposure, and the size of PI-type investment assets is not large, so the loss burden due to increased capital market volatility is considered limited." It added, "Although a decline in brokerage commission income is expected due to reduced stock market trading volume, solid performance in the IB and retirement pension-focused asset management sectors, leverage expansion after capital increase, and short-term financial product management utilizing liquidity capacity are expected to maintain excellent profit-generating capability."

A Hyundai Motor Securities official emphasized, "Having obtained ‘AA-’ ratings from all three major domestic credit rating agencies, we expect mid- to long-term corporate value enhancement." He added, "We will continue stable growth through diversification of revenue structure and thorough risk management in the future."

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