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“The acquisition will not have any significant impact on Hyundai Steel’s financial profile, given Dongbu Special Steel’s small scale when compared with Hyundai Steel,” Moody’s senior vp Chris Park said in a statement on Tuesday October 28.
The Moody’s statement came shortly after Hyundai Steel disclosed it was appointed the preferred bidder for Dongbu Special Steel.
South Korea’s second-largest steelmaker, Hyundai Steel was competing for Dongbu Group’s specialty steelmaking subsidiary against SeAH Group and Dongil Industries.
Even though no value or further details have been disclosed so far by Hyundai Steel, Moody’s is estimating the acquisition cost at about 300 billion Won ($285.5 million).
Adding Dongbu Special Steel’s total balance sheet debt of 95 billion Won ($90.4 million) in the end of 2013, the whole value would account for only 3% of Hyundai Steel’s adjusted debt as of the June this year, the credit ratings agency noted.
“Accordingly, the acquisition will only raise Hyundai Steel’s debt/Ebitda [earnings before interest, taxes, depreciation and amortization] by a mere [one tenth], even if the company acquires a 100% stake,” it pointed out.
And while Dongbu Special Steel’s earnings and cash flow generation are “insignificant” when compared to those by Hyundai Steel, Moody’s said the acquisition will provide a “degree of synergy” for the latter.
This is because of Dongbu Special Steel’s strengths in specialty steel manufacturing for auto companies, Moody’s said.
Hyundai Steel has been looking to supply auto steel products to carmakers Hyundai Motor and Kia Motors, affiliates of its parent company Hyundai Motor Group.
It is building a 1-million-tpy speciality steelmaking plant in Dangjin, scheduled to come on stream in early 2016, with a production capacity of 600,000 tpy of steel bar and 400,000 tpy of wire rod.
The steelmaker had not replied to Steel First’s request for a comment on the acquisition at the time of publishing.
Hyundai Steel's purchase of fellow South Korean producer Dongbu Special Steel will not negatively affect the former's finances, according to credit ratings agency Moody's.