Merger with Hysco ‘credit positive’ for Hyundai Steel, Moody’s says

Hyundai Steel’s planned merger with sister company Hyundai Hysco would be “credit positive” for the company as it would strengthen its business and financial profile, ratings agency Moody’s said.

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The positive outlook comes from Hyundai Hysco’s “solid business profile and healthy financial leverage”, Moody’s senior vp Chris Park said, late on Wednesday April 8, following the merger announcement by Hyundai Steel.

“The merger will provide Hyundai Steel with a vertically integrated and more balanced product portfolio [and] will also result in a degree of synergy and cost-savings, given the two companies’ close business relationship,” Park said.

If the merger materialises as planned and the shareholders back it, Hyundai Steel’s adjusted debt/Ebitda (earnings before interest, taxes, depreciation and amortisation) ratio could fall to 3.8 in 2016, from 4.5 in 2014, according to Moody’s.

This would be be driven by Hyundai Hysco’s low financial leverage and Moody’s expectation of lower debt levels at Hyundai Steel.

The credit ratings agency added, however, that the completion of the merger remains “uncertain” as it is still subject to the approval of shareholders at a meeting scheduled for May 28.

The deal could “fall through”, Moody’s said, if the sales price agreed by shareholders exceeds 500 billion Won ($457 million) for Hyundai Steel or 200 billion Won ($182 million) for Hyundai Hysco.

South Korea’s second-largest steelmaker, behind Posco, Hyundai Steel has the capacity to produce 24 million tpy of crude steel and rolling mills that manufacture goods such as hot rolled coil, plate, cold rolled coil, rebar and sections.

In 2014, it produced 12.21 million tonnes of flat steel and 6.88 million tonnes of long steel products.

Hyundai Hysco, on its turn, is dedicated to the production of steel pipes and the downstream supply of automotive sheet steel through several steel service centres in countries including the USA, China, India, Russia, Brazil and Turkey.

The majority of its overseas steel sales are destined for Hyundai Motor Group’s two car companies, Hyundai and Kia.

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