Research Update:

Hyundai Motor Outlook To Positive On Expectation Of Strong Financial Profile Weathering Challenges; Ratings Affirmed
Primary Credit Analyst: Sangyun Han, Hong Kong (852) 2533-3526; sangyun.han@standardandpoors.com Secondary Contact: JunHong Park, Hong Kong (852) 2533-3538; junhong.park@standardandpoors.com

Table Of Contents
Overview Rating Action Rationale Outlook Ratings Score Snapshot Related Criteria And Research Ratings List

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Research Update:

Hyundai Motor Outlook To Positive On Expectation Of Strong Financial Profile Weathering Challenges; Ratings Affirmed
Overview
Both Hyundai Motor and Hyundai Motor Group excluding finance subsidiaries are likely to remain debt-free over the next 24 months on an adjusted basis. We are revising our outlook on our long-term corporate credit rating on Hyundai Motor to positive. However, we are affirming our 'BBB+' long-term corporate credit and guaranteed debt ratings on Hyundai Motor because the company needs to address several challenges such as declines in market share and profitability. We base our 'BBB+' long-term corporate credit rating on Hyundai Motor on the ' bbb+' stand-alone credit profile for Hyundai Motor and its status as a core subsidiary of Hyundai Motor Group, who we assess as having a ' bbb+' group credit profile. The positive outlook reflects our opinion that both the company and the group are likely to weather the challenges mentioned and maintain a financial risk profile commensurate with a higher rating over the next 24 months.

Rating Action
On Jan. 28, 2014, Standard & Poor's Ratings Services revised its outlook on its 'BBB+' long-term corporate credit rating on Korea-based automaker Hyundai Motor Co. (HMC, the company) to positive. At the same time, we affirmed our 'BBB+' long-term corporate credit and guaranteed debt ratings on HMC.

Rationale
We base our revision of the outlook to positive on our view that the financial risk profiles of both the company and Hyundai Motor Group (the group), to which the company belongs, are sustainable enough that we could possibly raise our rating on HMC over the next 24 months. Both the company and the group are likely to remain debt-free on an adjusted basis--excluding finance subsidiaries--during this period despite volatility and rising competition in the auto industry. We base our expectation that HMC, including subsidiary Kia Motors Corp. (Kia), will maintain a financial risk profile commensurate with a higher rating on its very low indebtedness, high cash holdings, and continued robust free

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Research Update: Hyundai Motor Outlook To Positive On Expectation Of Strong Financial Profile Weathering Challenges; Ratings Affirmed

operating cash flow despite a recent moderation. In our view, HMC's much-improved brand and product quality and a prudent financial policy enable the company to continue to generate solid free operating cash flow. In our view, these brand and product improvements are likely to keep HMC and Kia's combined global market share at 8.5%-9.0% and their profitability above the industry average over the next 24 months, despite our expectation of a pattern of moderation in both market share and profitability during the period. Also, we expect the company to maintain a prudent financial policy through a focus on investment in research and development, gradual expansion in capacity, avoidance of significant noncore investment, and no significant increases in dividend payouts. Our rating affirmation reflects our concerns that HMC faces challenges such as lower market share and profitability in our base case despite only limited deterioration in credit quality. We expect HMC and Kia's combined global market share to decline gradually to 8.7% in 2014 and 8.5% in 2015 from 8.8% in 2013 in the absence of significant planned additions in capacity during the period. Continued depreciation of the Japanese yen against the Korean won undermines improvement in the company's market share or profitability, because of rising competitive pressure due to Japanese automakers' better cost position and appetite for expansion. We assess HMC's stand-alone credit profile (SACP) as 'bbb+' to reflect the company's "satisfactory" business risk profile and "modest" financial risk profile. We view HMC's business risk profile as "satisfactory." HMC and Kia dominate the domestic market, with an almost 80% share--although this declined somewhat recently. Globally, they have a good market share of 8.5%-9.0% and a well-diversified geographic presence. Industry-leading profitability comparable with that of high-end carmakers flows from fundamentally enhanced product quality and brand, reduced costs through platform integration, and advanced global marketing capability. We view HMC's financial risk profile as "modest," as defined in our criteria. We believe HMC will maintain strong credit quality, exceeding that in the "modest" category, over the next 24 months. Also, HMC has generated consistent strong positive free cash flow for the past five years, and we expect solid operating cash flow and moderate capital spending to sustain this pattern in the future. We believe HMC's financial strength will better position it to respond to unexpected difficulties in the industry, which is highly volatile and competitive. We assess the group credit profile (GCP) for Hyundai Motor Group as 'bbb+', identical to the SACP for HMC. We believe there is more than a one-in-three possibility that the group could achieve a higher GCP. We base this on our expectation that the group's financial risk profile will remain commensurate with a higher GCP as a result of the financial strength of key group subsidiaries such as HMC, Kia, and Hyundai Mobis Co. Ltd. We assess HMC and Kia as core subsidiaries of the group for the following reasons: The group is unlikely to sell HMC and Kia given that they operate in the

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Research Update: Hyundai Motor Outlook To Positive On Expectation Of Strong Financial Profile Weathering Challenges; Ratings Affirmed

auto manufacturing industry, which is integral to the group's overall strategy; A strong long-term commitment of support from senior group management; They form the fifth-largest auto manufacturer in the world; They account for about 70% of group revenue and EBITDA; The group's reputation, name, brand, and risk management are closely tied to them; and Both companies have operated for more than five years.

Our base case assumes the following: South Korea's real GDP growth is 3.5% in 2014 and 3.8% in 2015; China's real GDP growth is 7.4% in 2014 and 7.2% in 2015; The U.S.'s real GDP growth is 2.6% in 2014 and 3.1% in 2015; Revenue growth is around 2%-4% in 2014 and 2015; EBITDA margins moderate to around 10.5% in 2014 and 2015 from around 11% in 2013; and Capital expenditures rise to about KRW4.5-KRW5 trillion in 2014 and 2015 from about KRW3.8 trillion in 2013. This would produce the following credit metrics: No debt in 2014 and 2015 on an adjusted basis--excluding finance subsidiaries; and Continued positive free cash flow, despite some moderation, in 2014 and 2015 from 2013.

Liquidity
We assess HMC's liquidity as "strong." We estimate the company's liquidity sources exceeded 1.5x uses in 2013. We also estimate liquidity sources are likely to exceed uses even if EBITDA declines 30%, which is our stress case. Principal liquidity sources include: Cash and cash equivalents of about KRW18.5 trillion as of Dec. 31, 2012, excluding finance subsidiaries; and Cash flow from operations of about KRW5.5 trillion. Principal liquidity uses include: Debt maturing in 2013 of KRW3 trillion, excluding finance subsidiaries; Capital expenditure of around KRW3.8 trillion; and Modest dividend payments.

Outlook
The positive outlook reflects our opinion that both HMC and Kia and the group are likely to maintain financial risk profiles commensurate with higher ratings over the next 24 months despite volatility and increasing competition in the global auto industry. In our view, HMC and Kia's absence of debt and their strong liquidity will likely enable them to weather any negative developments, as was the case when their market shares and profitability declined recently.

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Research Update: Hyundai Motor Outlook To Positive On Expectation Of Strong Financial Profile Weathering Challenges; Ratings Affirmed

Upside scenario
We may raise our ratings on HMC and Kia if the group maintains very low debt, allowing us to raise the GCP to 'a-'. A higher GCP would lead to upgrades of our ratings on HMC and Kia because the companies are core group subsidiaries that we generally rate at the level of the GCP regardless of the SACPs for HMC and Kia. We may also raise our ratings on HMC and Kia if the two companies maintain very low levels of debt, potentially as a result of sustainability in market share and profitability. We view HMC and Kia's financial performance as the most critical driver of the GCP, because they dominate group cash flow, generating around 70% of revenue and EBITDA.

Downside scenario
We may revise the outlook on our ratings on HMC and Kia to stable if we view ourselves as unlikely to raise the GCP, which would constrain any upgrade of our ratings on HMC and Kia. Given that HMC and Kia's financial performance are the most critical drivers of the GCP, we may revise the outlooks on HMC and Kia to stable potentially as a result of the adjusted debt to EBITDA for HMC and Kia exceeding 1.5x for a protracted period, which would make a higher GCP less likely. Weaker-than-expected market shares and profitability for HMC and Kia, possibly as a result of steeper-than-expected competition or a cyclical downturn in the global auto industry, are likely to lead us to revise the outlook to stable.

Ratings Score Snapshot

Corporate Credit Rating: BBB+/Positive/-Business risk: Satisfactory Country risk: Intermediate Industry risk: Moderately high Competitive position: Strong Financial risk: Modest Cash flow/Leverage: Modest Anchor: bbb+ Modifiers Diversification/Portfolio effect: Neutral (no impact) Capital structure: Neutral (no impact) Liquidity: Strong (no impact) Financial policy: Neutral (no impact) Management and governance: Satisfactory (no impact) Comparable rating analysis: Neutral (no impact)

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Research Update: Hyundai Motor Outlook To Positive On Expectation Of Strong Financial Profile Weathering Challenges; Ratings Affirmed

Stand-alone credit profile: bbb+ Group credit profile: bbb+ Entity status within group: Core (no impact)

Related Criteria And Research

Related Criteria
Methodology And Assumptions: Liquidity Descriptors For Global Corporate Issuers, Jan. 2, 2014 Corporate Methodology, Nov. 19, 2013 Corporate Methodology: Ratios and Adjustments, Nov. 19, 2013 Group Rating Methodology, Nov. 19, 2013 Key Credit Factors For The Auto And Commercial Vehicle Manufacturing Industry, Nov. 19, 2013 Guarantee Criteria--Structured Finance, May 7, 2013 Methodology: Management And Governance Credit Factors For Corporate Entities And Insurers, Nov. 13, 2012 Assumptions: Analytical Adjustments For Captive Finance Operations, June 27, 2008

Ratings List
Ratings Affirmed; Outlook Action To Hyundai Motor Co. Corporate Credit Rating Ratings Affirmed Hyundai Capital America Senior Unsecured BBB+/Positive/-From BBB+/Stable/--

BBB+

Hyundai Motor Manufacturing Alabama LLC Senior Unsecured BBB+ Hyundai Motor Manufacturing Czech s.r.o. Senior Unsecured BBB+

Complete ratings information is available to subscribers of RatingsDirect at www.globalcreditportal.com and at www.spcapitaliq.com. All ratings affected by this rating action can be found on Standard & Poor's public Web site at www.standardandpoors.com. Use the Ratings search box located in the left column.

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