[Edaily Marketin Reporter LEE GEON-EOM ] NICEHoldings announced on the 9th that it had upgraded the credit rating on HD Hyundai Construction Equipment(267270)’s unsecured corporate bonds from “A (Positive)” to “A+ (Stable).” The credit rating for commercial paper (CP) was assessed at A2+. Previously, on the 5th, Korea Credit Rating Agency (KCR) and Korea Ratings Corporation (Korea Ratings Corporation) also raised the rating on HD Construction Equipment’s unsecured bonds to A+ (Stable), meaning all three credit rating agencies have now raised their ratings by one notch.

The key factor behind the rating upgrade is the improved business stability resulting from the absorption-type merger with HD HYUNDAI Infrastructure Core last January. NICE Credit Rating determined that the incorporation of the engine business through the merger has helped offset the earnings volatility in the construction equipment division.

Although the engine, parts, and aftermarket (AM) segments are relatively small in scale, their average operating profit margins over the past three years have reached 12.5% and 26.2%, respectively. By 2030, the rate of in-house engine installation is expected to exceed 70–80%, which is projected to further increase the level of vertical integration within the value chain.

Profitability has also improved. Since the start of this year, sustained demand for power generation and defense engines, coupled with steady growth in construction machinery sales across major regions, has reduced the burden of fixed costs and promotional expenses associated with inventory reduction. Increased sales of high-margin medium- and large-sized equipment, particularly in Shinhung markets, also contributed to this improvement. The cumulative operating profit margin for the first three quarters stood at 8.7% based on preliminary results, up 2.7 percentage points from the same period last year (6%).

However, the strengthening of the Korean won and weak demand in the Middle East and Africa due to the prolonged U.S.-Iran conflict in the second half of the year were cited as burdens on the construction equipment division. NICE Ratings projected that this would be partially offset by the increased profit contribution from the engine division, driven by a 387.9 billion won supply contract for power generation engines signed with Enchanted Rock in the U.S. and the expansion of engine plants in Gunsan and Incheon.

Debt burdens have also eased. As cash generation has significantly improved, the net debt-to-EBITDA ratio fell from 1.7x at the end of 2025 to 0.9x as of the end of June this year. While capital expenditures—such as the development of new models and the expansion of engine plants—and working capital requirements are expected to continue, the agency explained that the company can manage these through its strengthened cash generation capacity.

Nara Credit Rating identified U.S. tariffs as a key consideration. In April, the U.S. changed the basis for levying tariffs on steel products from the value of steel content to the total product price and lowered the tariff rate from 50% to 25%. For HD Construction Equipment’s exports to the U.S.—primarily excavators and wheel loaders—the steel content value typically accounts for less than 37.5% of the total product value, resulting in a structure where the actual tariff burden is significant. However, analysts predict that the impact will be limited for the time being, as the tariff rate was further reduced to 15% in June and will be applied on a temporary basis until the end of next year.

The assessments by Han Shin Rating and Han Ki Rating are largely consistent. Han Shin Rating highlighted that the merger elevated the company’s global market ranking from 25th to 15th and noted that the engine division’s cumulative operating profit margin for the third quarter reached 14.5%. Han Ki Rating assessed that the engine and after-sales service businesses are generating more than half of the company’s total operating profit, thereby mitigating the volatility of the main equipment business.

Nara Credit Rating plans to consider a rating upgrade if the consolidated EBIT-to-revenue ratio remains stable at 10% or higher. Conversely, if the EBIT-to-revenue ratio falls below 5% and the net debt-to-EBITDA ratio remains above 2x, this would serve as a downgrade factor.

Park Hyun-jun, a senior researcher at Nara Credit Rating, stated in the evaluation report, “There is uncertainty stemming from the possibility of changes in trade policy following the U.S. midterm elections and trends in competitors’ selling prices,” adding, “We plan to monitor trends in construction equipment demand in developed and Shinhung markets, as well as financial burdens related to working capital and capital expenditures.”