SEOUL, April 6 (Korea Bizwire) – Moody’s Investors Service said Thursday it will maintain the current ratings for Hyundai Motor Co. and Kia Motors Corp. despite sharp declines in auto sales in China.
“Although Hyundai’s and Kia’s weak auto unit shipments from China will likely have a short-term negative impact on their profitability and cash flow, we do not expect this development which mainly stems from political tensions between Korea and China to last over the longer term,” Yoo Wan-hee, a Moody’s vice president and senior credit officer, said in a statement.
He expected a strong balance sheet for the two companies and the current level of profitability to provide “adequate buffers” in their Baa1 ratings category.
In March, Hyundai’s and Kia’s vehicle shipments in China plunged 44 percent and 68 percent, respectively, from a year earlier, data released on Monday by the companies showed.
Moody’s said the sharp decline in auto sales was caused by the recent escalation in political tensions between South Korea (Aa2 stable) and China (Aa3 negative) over the deployment of the Terminal High Altitude Area Defense (THAAD) system in Korea.
Seoul and Washington are presently in the process of deploying the THAAD system here to better defend against growing nuclear and missile threats from North Korea. China has explicitly opposed the installation, arguing that the powerful X-band radar that comes with the system could be used to spy on its military.
“The impact was partly offset by the fact that both companies operate in China through a joint venture with local partners, holding only 50 percent stakes,” the ratings agency said.
Moody’s hinted it will take up to one and a half years before Hyundai and Kia recover their market shares in China, saying it took 12-18 months for Japanese carmakers to recover their shares in the world’s biggest automobile market following political tensions with China that escalated in 2012.
In 2016, Hyundai and its affiliate Kia sold about 7.9 million vehicles in global markets.’