Fri, Apr 10, 2020 page12

• Taiwan Ratings lowers credit rating on Yulon Motor

  • By Crystal Hsu / Staff reporter
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  Taiwan Ratings Corp (台灣信評) yesterday lowered its long-term issuer credit rating on Yulon Motor Co (裕隆汽車) from “twA-” to “twBBB+,” saying its profitability could remain weak amid ongoing business restructuring and a likely weaker dividend payout from affiliate Yulon Nissan Motor Co (裕隆日產).

  The local arm of Standard & Poor’s (S&P) Global Ratings affirmed the short-term “twA-2” rating on Yulon Motor with a stable outlook, in keeping with its view that it could improve its debt to EBITDA, or earnings before interest, taxes, depreciation and amortization, ratio over the next one to two years.

  The downgrade came 10 days after Yulon said it accumulated losses of NT$23.88 billion (US$792 million) as of December last year, more than 50 percent of its share capital, which it attributed to unprofitable units Luxgen Motor Co (納智捷) and Dongfeng Yulon Motor Co (東風裕隆), a joint venture with China’s Dongfeng Automobile Co (東風汽車).

  

  Luxgen Motor Co president Tsay Wen-rong poses next to a Luxgen URX sports utility vehicle at a news conference in Taipei on Dec. 16 last year.

  Photo: Wu Chia-ying, Taipei Times

  Affiliate Hua-chuang Automobile Information Technical Center Co (HAITEC, 華創車電) also contributed to the losses, the firm said.

  Yulon’s debt leverage has nearly doubled after its consolidation of HAITEC and the prospect of a significant improvement over the next one to two years is limited, Taiwan Ratings said.

  “We expect Yulon Motor’s operating loss to remain high this year due to expenses associated with the downsizing of HAITEC, but the amount would be materially lower from last year,” Taiwan Ratings said.

  Yulon recognized large asset impairments after signing a joint venture contract with Hon Hai Precision Industry Co (鴻海精密) and turned HAITEC into an investment holding company.

  Losses from Yulon’s Luxgen business is also likely to narrow because the subsidiary would only to have pay royalties for new models to the joint venture rather than sharing development costs like before, the ratings agency said.

  The consolidation of HAITEC has negatively affected Yulon’s income statement and burdened its balance sheet given large debts and minimal cash.

  Yulon Motor plans to lower its debt leverage in the next one to two years by selling some of its financial assets and industrial land.

  However, the timeline for the planned sales remains uncertain and a weak domestic economy renders the move unfavorable.

  Furthermore, weak auto demand in China could stifle Yulon’s efforts to improve its EBITDA next year, Taiwan Ratings said.

  Yulon Motor’s EBITDA relies heavily on cash dividend payouts from Yulon Nissan, whose performance largely depends on the investment income from Nissan branded operations in China.

  It could remain weak next year if sales of Nissan-branded cars in China disappoint this year due to an economic slowdown and potential material shortages caused by the pandemic.

  Dongfeng Motor resumed sales of Nissan-branded vehicles in February in China, where the pandemic appears to be under control, Taiwan Ratings said.
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