April 24, 2024

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[THE INVESTOR] The market on March 29 reacted quickly to Hyundai Motor Group’s governance reform scheme announced the day before, with the share prices of its affiliates subject to spinoffs and mergers going in the opposite direction.

Investors pulled more than 2 trillion won (US$1.88 billion) off the market value of Hyundai Mobis this morning, less than a day after the group released a structural overhaul plan to spin off the parts maker’s lucrative businesses and merge them with its Hyundai Glovis. 

Share price of the logistics affiliate of the nation's largest carmaker, shot up 4.9 percent while that of Hyundai Mobis was down 2.87 percent at closing price. The scheme, according to the group, is aimed at improving the transparency of its governance structure and bolstering shareholder values. The deal still needs approval from the shareholders.

Hyundai Motor Group Chairman Chung Mong-koo (left) and his son Eui-sun

Under the plan, four out of nine links to cross-shareholding structure will be removed, wiping off the public concerns over years of inter-affiliate trading blamed for hindering fair market competition.

Kim Sang-jo, chairman of the nation’s antitrust watchdog and the former shareholder rights activist, has been publicly pointing at Hyundai to cut off such links and conduct governance restructuring since last year.

Announcing the plan, group said that the change has nothing to do with transferring the control from Chairman Chung Mong-koo to his son Vice Chairman Chung Eui-sun, as the father remains as the principal shareholder.

“The plan could be a response to the regulator’s reform drive, and the issue is how will it be achieved,” said Park Ju-gun, CEO of CEOScore, a local corporate tracker.

"(The spin off merger plan could make) the share value of Hyundai Glovis grow further to have Kia and Hyundai Steel buy them at its peak price. (Selling Hyundai Glovis’ share at peak price) could provide enough funds for Vice Chairman Chung Eui-sun to pay transaction tax and other costs to strengthen his power,” he said, adding that the heir is the single-largest shareholder of Hyundai Glovis with 23.3 percent. His father holds a separate 6.7 percent.

The group is expected to have Kia Motors and its steel arm Hyundai Steel buy shares of Hyundai Glovis through a series of block deals, possibly in July, if the deal is approved at shareholders‘ meeting set on May 29.

Board members of Kia Motors, Hyundai Glovis and Hyundai Steel, meanwhile, would review selling each affiliate’s shares of Hyundai Mobis to the controlling family of the nation’s second-largest conglomerate.

Kia Motors currently owns 16.9 percent of shares of Hyundai Mobis, Hyundai Glovis 0.7 percent and Hyundai Steel 5.7 percent.

In order to do so, the controlling family needs money to acquire shares of Hyundai Mobis, the de facto holding company, by selling their Hyundai Glovis stocks among others.

To persuade the shareholders, the group would need to clarify the reasons for the spinoff plant that it is not solely in the best interest of the owners, experts noted.

“The structural spinoff is being proposed to increase (the group)’s business efficiency, but the market needs clear reason why it plans to hand over after-service and module units to Hyundai Glovis, and how the controlling family would buy shares, as well as the reasoning behind the distribution ratio” said Yoon Tae-ho, analyst at Korea Investment and Securities.

The distribution ratio for the spin-off merger between Hyundai Mobis and Hyundai Glovis was measured at 0.61:1. This means that every share of Hyundai Mobis stockholders would receive 0.61 new shares of Hyundai Glovis after the overhaul.

By Cho Chung-un/The Korea Herald 
(christory@heraldcorp.com)