How Hyundai Motor Group will fund its massive EV investment? Korean auto conglomerate has strong cash position and may consider debt financing

Translated by Ryu Ho-joung 공개 2022-05-25 08:11:27

이 기사는 2022년 05월 25일 08:11 더벨 유료페이지에 표출된 기사입니다.

South Korea’s Hyundai Motor Group plans to pour at least $22 billion by 2030 to expand its electric vehicle (EV) business at home and abroad, with attention being paid to how the auto conglomerate will finance its massive investment plans.

When US President Joe Biden visited South Korea last week, Hyundai Motor Group announced a $5.5 billion investment plan to build an assembly plant dedicated to EVs and a battery cell plant in Georgia, with an aim to start operations in the first half of 2025. The construction will begin in January next year.

Apart from this, the conglomerate plans to invest 21 trillion won ($16.6 billion) in the domestic EV sector – encompassing production, research and development, infrastructure and other relevant industries – to promote the country’s EV ecosystem.

The auto conglomerate did not disclose how it will finance those plans. “We don’t disclose financing details when announcing capital spending plans. We never have before,” an official at Hyundai Motor Group said.

Hyundai Motor and its sister automaker Kia Corp both have a strong cash position. As of the end of March this year, Hyundai Motor had about 21.2 trillion won in cash reserves, which include cash on hand, cash equivalents and short-term investments.

That represented a 7% increase compared to three months ago. Hyundai Motor’s cash reserves have continued to grow in recent periods as the automaker has put cash first to tackle uncertainties in the wake of the Covid-19 pandemic.

Kia had cash reserves of approximately 16 trillion won at the end of March. Hyundai Mobis, which could participate in investing in a battery cell plant in Georgia, had about 4.7 trillion won in cash reserves.

The conglomerate may consider raising money from green bond issues. With ample cash reserves, Hyundai Motor and Kia are not frequent issuers of bonds. But they both successfully sold green bonds last year, with the proceeds used for capital spending related to EVs.

In February last year, Hyundai Motor issued its inaugural green bond worth 400 billion won, with 3-year, 5-year and 7-year tranches. The offering was increased by 100 billion won to reflect strong investor demand.

Kia sold a 300 billion won green bond in March last year and also successfully issued a $700 million dollar-denominated green bond in the following month.

Loan financing could be another option. In 2008, Kia raised almost half of the $1 billion investment in its Georgia plant by taking out loans from four banks including HSBC, with a guarantee from Korea Trade Insurance Corporation.

Hyundai Motor also took out loans totaling 180 million euros from four foreign banks including ING when the automaker built its plant in Saint Petersburg, Russia, in 2009. (Reporting by Su-jin Yoo)
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