Hyundai Motor Group is tapping the bond market yet again after issuing the HYUCAP 2.500% 24Jan2027 Corp (USD) and HYUCAP 2.125% 24Apr2025 Corp (USD) in January 2022. The 3Y bond from Kia Corporation (the “issuer”) has an initial price guidance (“IPG”) of CT3+120 basis points (estimated yield: 2.735%); the 5Y bond has an IPG of CT5 + 130bps (estimated yield: 3.068%).
Kia Corporation is one of the top 5 global automakers and second largest auto manufacturer in Korea with an approximate market share of 31.7% in the first nine months of 20212 (“9M21”). The company is consistently ranked among leading car manufacturers with a market share of 29.9% in 2020, 29.2% in 2019, 29.3% in 2018. Kia Corporation is one of the fastest growing car makers with 23 overseas subsidiaries and 4727 dealers worldwide.
Kia Corporation is rated ‘Baa1’ (stable) / ‘BBB+’ (stable) by Moody’s and S&P respectively. The newly issued bonds are expected to receive a credit rating of ‘Baa1’ / ‘BBB+’ (Moody’s/S&P). Proceeds from this bond offering will be used to refinance or finance eligible green projects under the Kia Corporation Green Finance Framework dated March 2021.
As a renowned car manufacturer in Korea, Kia managed to increase its sales from KRW 42.3t in 9M20 to KRW 52.7t in 9M21. The company expanded revenue from KRW 58.1t in 2019 to KRW 59.2t in spite of a pandemic year in 2020. Not only did it record higher revenue, EBITDA growth is also impressive. EBITDA increased from KRW 4.1t in 2019 to KRW 4.3t in 2020, and went on to exceed KRW 5.6t in 9M21. EBITDA margins was 10.6% in 9M21, and this was higher than the peer average of about 9.3%.
Total profit rose sharply by 568% year-on-year to KRW 3.5t in 9M21, mainly due to its low profit base in 2020. Capital expenditure accounted for only 23% of EBITDA in the same period, and the overall revenue performance and cost control were good. Additionally, Kia’s free cash flow improved as capital expenditures decreased by 20.2% in 9M21 compared to 9M20, due to few acquisitions of new machinery and molds.
Looking ahead, Kia is aiming to expand its green vehicle sales. It is hoping to achieve 4.05m of green car sales by 2030, out of which 40% would electric or hybrid electric vehicles. This is a big step forward as in 2020, Kia only sold 60 thousand electric vehicles, accounting for just 8% of total car sales.
Kia has strong credit metrics. The company had a total debt of KRW 9.0t as at end September 2021 with KRW 17.8t in cash and short-term investments. If we treat its short-term investments as cash equivalents, the company is in a net cash position with a total debt/EBITDA multiple as low as 1.2x and a very low level of gearing (Debt/ capital: 22%). The company's interest coverage ratio is very high at 38.7x, reflecting a very good ability to service its interest expense.
The new Green bonds will mature in 3 years (due In February 2025) and 5 years (due February 2027), with estimated guidance yields of about 2.735% and 3.068% respectively, which are close to the bond yields of other ‘BBB’ rated bonds.
Given the company's strong business performance and low level of financial leverage, investors seeking stable returns may consider their new 3- or 5-year USD bonds, but investors should be aware that the final price guidance may not be as high as their IPGs.
Declaration: For or specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) and the analyst who produced this report hold a NIL position in the abovementioned securities.
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