Foreign stakes in Hyundai Motor increasing
Deputy Prime Minister and Minister of Strategy and Finance Kim Dong-yeon, left, shakes hands with Hyundai Motor Group Vice Chairman Chung Eui-sun in front of a hydrogen powered electric car during a visit to the firm's environment technology lab in Yongin, Gyeonggi Province, Jan. 17. / Yonhap
By Nam Hyun-woo
The stakes owned by foreign investors in Hyundai Motor Company are continuing to rise, casting concerns over U.S. activist fund Elliott influencing other foreign funds to oppose Hyundai Motor Group's (HMG) proposed plan to restructure its shareholding structure.
According to the Korea Exchange, the country's bourse operator, shares held by foreign investors in Hyundai Motor Company stood at 46.57 percent on Friday. The number has been increasing from 46.17 percent on April 3, when Elliott first revealed that it has stakes worth $1 billion in HMG companies.
The rise came at an odd moment, as Hyundai Motor Company saw a slight decline in earnings during the first quarter. The company said last week it recorded 22.44 trillion won in sales and 681.3 billion won in operating profit in the first quarter this year. Sales have declined by 4 percent from a year earlier, while operating profit has dropped 45.5 percent during the same period.
The foreign investors' move is interpreted as a sign of Elliott influencing foreign funds possibly influencing other funds to oppose HMG's restructuring plan, according to sources.
Elliott on April 23 demanded HMG merger Hyundai Motor Company and Hyundai Mobis, increase dividend payout ratio and cancel all existing and future treasury shares.
In its request, Elliott said it owns shares worth $1 billion in Hyundai Motor Company, Mobis and Kia Motors, and it wants the group to set up a holding firm through the merger, instead of HMG's own plan of making Mobis a “controlling firm” after a spin-off merger with HMG logistics unit Hyundai Glovis.
For Elliott, which has a stake in Mobis, the plan is not a favorable one because Mobis will hand over its key revenue sources divisions to Glovis in part of the spin-off and the fund does not have a stake in Glovis.
For HMG, Elliott's request for a holding firm is not acceptable, because it has to separate its financial units and suffer legal restrictions in merger & acquisition deals if there is a holding firm on top of its shareholding structure.
Though Elliott's stakes in those companies are expected to remain at 1.5 percent each, watchers have been expressing concerns that it may join forces with other foreign funds to oppose HMG's plan at a Mobis shareholder meeting next month.
Meanwhile, Hyundai Motor Company announced Friday that it decided to cancel 4.41 million common and 1.28 million preferred shares which it currently has and purchase an additional 2.85 million shares to cancel them too.
With the plan, the company will write down shares worth 960 billion won _ 560 billion won for existing shares and 400 billion won for future purchases. The volume accounts for 3 percent of the total Hyundai Motor Company stocks.
The automaker said of the decision “the latest extent of its continued efforts to improve shareholder value” and added “it will continue striving to come up with various shareholder-friendly policies.”
Hana Financial Investment analyst Song Sun-jae expected a 3 percent hike in Hyundai Motor Company shares after the cancellation. “Also, it gives an additional hike to the stake owned by the HMG owners (Chairman Chung Mong-koo and Vice Chairman Chung Eui-sun), as well as raising expectations on further improvements in its shareholder policy,” Song said.
As Hyundai said, canceling a company's treasury shares is one of the most efficient ways of uplifting the company's stock price and shareholder returns because the company buys its own shares from the market with its profit and cancels them. This will decrease the entire volume of its stocks and raise the value of the remainder.
However, it doesn't help the company's fundamental growth because the company could have betted the profits into investments, which could provide opportunities for the company to enhance its profitability.
As Hyundai Motor Company decided to cancel its own shares, observers say the company accepted the cancellation as a bargaining chip for Elliott.
Another concern over Elliott's move is that it can be seen as an example of foreign capitals to sway domestic firms' decision with their stakes.
Along with Hyundai Motor Company, Samsung Electronics, KT&G, POSCO, Naver and a slew of giant financial firms here have foreign stakes higher than 50 percent. SK hynix, E-mart and LG Household & Healthcare are also domestic titans with nearly 50 percent foreign stake.