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KCC closed down by 4,000 won or 0.78 percent at 507,000 won.
However, Hyundai Heavy closed up 5.96 percent, or 7,000 won, at 124,500 won. The benchmark KOSPI closed up 6.80 points or 0.35 percent at 1,964.84.
In a public notice, KCC said it will buy 2.44 million shares of HHI for 300 billion won. The purchase will raise KCC's stake in HHI to 6.25 percent from 3.04 percent.
KCC said it sold its real estate assets to raise funds for investment in the shares of Hyundai Heavy.
It said the purchase of the shares was part of its efforts to raise efficiency in managing its holdings of equities.
"Buying HHI's stocks was part of our investment in managing our equity holdings more efficiently." KCC communication official Sung Ji-hyun said.
KCC and Hyundai Heavy are not affiliated. However, KCC Chairman & CEO Chung Mong-jin is a cousin of Chung Mong-joon, former lawmaker and the largest shareholder of Hyundai Heavy.
Some investors have cast suspicion over KCC's investment in Hyundai Heavy, which is suffering record losses amid a protracted business slump. They subsequently dumped KCC shares, believing the purchase of Hyundai Heavy shares might be intended to aid the shipbuilder.
Analysts said KCC's decision will negatively affect its share prices at least for the time being. Hyundai Heavy recorded more than 3 trillion won of operating losses in the nine months to September.
Samsung, Kiwoom and Korea Investment & Securities also revised down their target prices. Samsung cut its target to 671,000 won from 705,000 won, and Korea Investment to 680,000 won from 750,000 won.
Analysts are worried that KCC's move could increase its financial burden, amid concerns it may provide additional support to the shipbuilder and its other affiliates.
These analysts also expect KCC's move to have a negative impact on KCC stock sentiment.
"This purchase will work negatively for the stock as it raises concerns KCC will provide additional financial support to HHI," said Samsung Securities analyst Yun Sok-mo.
Korea Investment & Securities analyst Lee Kyung-ja said in a report that KCC's plan to buy HHI's shares is seen as a strategic move to bolster ties with Hyundai Heavy affiliates. KCC is heavily dependent on HHI affiliates for its sales.
"It is seen as KCC's strategic move to build a strong relationship with its partners' through share purchases," Lee said.
KCC owned 8.2 percent of HHI back in 2000, but has gradually cut its stake to 3 percent.
Lee said it remains uncertain from whom KCC will buy shares of Hyundai Heavy.
"If KCC would buy the shares directly from Hyundai Heavy or its affiliates, it could raise the suspicion that it is providing cash support to the shipbuilder," Lee said.