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S&P Lowers Hyundai Motor to 'B'

24 July 1998

S&P Lowers Hyundai Motor to 'B'; Still on Watch Neg

    TOKYO--Standard & Poor's CreditWire 7/24/98-- Standard & Poor's today lowered its long-term rating of Hyundai Motor Co. to single-'B' from single-'B'-plus. The rating remains on CreditWatch with negative implications.
    The downgrade reflects Hyundai Motor's weakening ability to generate earnings amid Korea's ongoing economic recession. After recording a 12% decrease in vehicle sales in Korea in 1997, Hyundai's domestic vehicle sales further dropped by 50% in the first half of 1998. In an effort to reduce its dependence on domestic sales, the company has increased vehicle exports by 6.6% in 1997 and 5.9% during the first half of 1998. Nevertheless, export growth could not fully offset the sharp decline in sales at home. In addition, a recent labor-management dispute has caused production losses and raises concerns over the company's ability to restructure its operations and reduce costs effectively.
    Although Hyundai Motor was able to remain profitable in 1997, Standard & Poor's expects the company to post losses in 1998 under current conditions. The company's credit measures have been undermined by weakening profitability and a growing debt burden: As of Dec. 31, 1997, pretax interest coverage was just above 1.0 times while total debt to capitalization exceeded 70%.
    The rating remains on CreditWatch with negative implications. Uncertainties persist over whether Hyundai Motor will be able to restore its business and financial profile through successful restructuring. In addition, Hyundai Motor is expected to participate in the auction of ailing rival Kia Motors Corp. If it wins the bid, Hyundai Motor could face a sizable immediate investment as well as the operational and financial burden of restructuring the troubled automaker and absorbing additional production capacity amid difficult industry conditions, Standard & Poor's said. ---CreditWeek

RATINGS DOWNGRADED, REMAIN ON CREDITWATCH NEGATIVE
                         TO               FROM
Hyundai Motor Co.
Corp credit rtg          B/Watch Neg/--   B+/Watch Neg/--
Sr unsecd debt           B/Watch Neg      B+/Watch Neg