S&P: Hyundai Glovis Co. Ltd. Outlook Revised To Positive On Proposed Merger; 'BBB+' Rating Affirmed

S&P Global Ratings said today that it had revised its outlook on Hyundai Glovis Co. Ltd. to positive from stable. At the same time, we affirmed our 'BBB+' long-term issuer credit rating on the Korea-based logistics service provider.

"The outlook revision reflects our expectation that Glovis' scale, profitability, and financial metrics could strengthen following a proposed merger with Hyundai Mobis Co. Ltd.'s domestic module and after-sales businesses," said S&P Global Ratings credit analyst Minjib Kim.

On March 28, 2018, Hyundai Motor Group (HMG) announced a group-wide business restructuring plan to enhance both the shareholding structure by eliminating cross-shareholding, and corporate governance. As part of the reorganization, Mobis will spin-off its domestic module and after-sales businesses and merge these businesses into Glovis. Mobis expects the spin-off deal to be completed by July 2018.

We expect Glovis' scale to materially increase following the transaction, given that the new assets have similar scale to the company's existing business with higher profitability. While these assets account for less than 20% of Mobis' total assets, they contributed more than half of the company's pre-tax profit during 2017. We also expect the transaction to improve Glovis' financial metrics, considering the new assets' net cash position.

"We revised the outlook to positive rather than place Glovis on CreditWatch with positive implications to reflect the uncertainties related to the execution of the proposed transaction, and the ongoing profitability pressure on HMG's auto business," said Mr. Kim.

We could raise the rating if: (1) Glovis completes the transaction as planned with significant improvement in its post-merger financial metrics with a near net cash position; and (2) we believe that HMG's market position hasn't meaningfully eroded.

We could revise the outlook back to stable if Glovis is unable to complete the transaction as planned. Separately, we could revise the outlook back to stable if we change the group's credit profile to 'bbb+' from 'a-' based on an erosion in HMG's market position. The EBITDA margin deteriorating to near 6% at the group's auto business would indicate such erosion.
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