Moody’s keeps Hyundai’s negative outlook despite ‘robust’ growth

Credit ratings agency Moody’s has maintained its negative rating outlook for Hyundai Steel even as the South Korean company posted “robust operating results” for the second quarter.

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“Despite a significant year-on-year improvement, the company’s financial leverage will remain at the lower end of its Baa3 rating category over the next 12-18 months,” Moody’s senior vp Chris Park said in a statement earlier this week.

“The negative rating outlook already reflects this concern,” he added.

Hyundai Steel’s consolidated operating profit surged by 97.7% year-on-year in the second quarter to 359 billion Won ($350 million), with operating profit margins rising to 8.6% from 5.5%.

Net profit almost quadrupled to 352 billion Won ($343 million) from 91 billion Won ($88 million) a year ago.

The improved results came mainly as a result of higher shipments following both the company’s merger with the cold rolling steel division of sister company Hyundai Hysco and the increased crude steel capacity after the completed installation of its third blast furnace late last year.

Sales volume moved up to 5.08 million tonnes from 4.22 million tonnes year-on-year, after finished steel output rose by 21% over the period to 4.93 million tonnes.

Revenues rose by 26.5% to 4.17 trillion Won ($4.06 billion) under the same comparison.

Moody’s noted that the better financial results came despite price cuts for the steel products Hyundai Steel supplies to its parent company, Hyundai Motor.

“Given the expected robust growth in Hyundai Steel’s earnings and the likely modest falls in its debt levels due to the company’s lower levels of planned capex, Moody’s expects Hyundai Steel’s adjusted debt/Ebitda [earnings before interest, taxes, depreciation and amortization] to fall to about 5.0x over the next 12-18 months from 8.6x in 2013,” the ratings agency added.

In its financial results report, Hyundai Steel also announced plans to build a 500,000-tpy continuous galvanizing line scheduled to come on stream in the beginning of 2016 at its Dangjin integrated steel mill.

Costing an estimated 130 billion Won ($126 million), the line will produce zinc galvanised steel sheet and ultra high-strength aluminum coated steel sheet.