Nam Hyun-woo has worked as a staff writer at The Korea Times since 2013, mostly covering business and politics. He currently belongs to the Business Desk where he covers topics such as emerging tech, AI, ICT and Korea's chaebol community. Prior to joining the team, he was the paper's correspondent for the presidential office of Korea during the Yoon Suk Yeol and Moon Jae-in administrations.
'Elliott's share buyback demand unrealistic'
By Nam Hyun-woo
U.S. hedge fund Elliott management's latest call for Hyundai Motor Group to buy back shares of its affiliates is highly unlikely to have any effect, analysts here said Wednesday.
On Tuesday, the U.S. hedge fund said it had sent a letter to Hyundai Motor Group directors demanding the group “engage with Elliott and other shareholders on governance improvements” and “return excess capital to shareholders in the form of a share buyback.”
Analysts say the new letter by Elliott is “nothing fresh,” reiterating its previous demands to influence shareholders preemptively before a shareholder meeting.
“The content of the letter is nothing new,” KB Securities analyst Kang Seong-jin said. “The fund reiterated its previous demand for the group to return capital to shareholders by citing an independent consulting firm.”
Kang expects the group will come up with a new governance restructuring plan, aimed at minimizing controversy.
“We expect that the group will reduce the number of shareholder meetings of Hyundai Motor Company and Hyundai Mobis, which have high ratios of foreign stakeholders, and will bring in a new structure that is centered on Hyundai Glovis, the majority of stakes of which are held by Hyundai Motor Group's largest shareholders (the owner family),” Kang said.
Other analysts interpreted that the fund is making another attempt to make up for its losses from Hyundai Motor Group equities. Reportedly, the fund has suffered losses worth 220 billion won ($195 million) from its equity investments in Hyundai Motor Group.
In the letter, the fund cited Conway MacKenzie, a global automotive consulting firm, insisting the group is grossly overcapitalized with excess capital ranging from 8 trillion won to 10 trillion won for Hyundai Motor Company and 4 trillion won to 6 trillion won for Hyundai Mobis.
“A history of questionable use of cash flow has resulted in non-operating assets tying up valuable capital (of the group),” the letter read. “Also, shareholder returns continue to lag behind industry standards, while non-conforming reporting of cash flows distort and hide Hyundai Motor Company's true cash flow from operations.”
A Hyundai Motor Group official said the group has no official statement about the letter, adding it was nothing new.
The letter is the latest move by the hedge fund, which has been issuing multiple “attacks” on the restructuring efforts of Korea's largest carmaker group.
In March, Hyundai Motor Group announced a governance restructuring plan aimed at breaking its circular shareholding and improving its corporate governance.
Under the plan, the group planned to start restructuring by spinning off Hyundai Mobis' lucrative modules and after-service divisions and merging them with the logistics unit Hyundai Glovis.
The remaining Mobis was supposed to become a controlling firm with a focus on developing technologies such as self-driving and connectivity.
The group, however, withdrew it two months later after facing an opposition campaign led by Elliott, which demanded a stronger dividend policy and a revaluation of Hyundai Mobis. Elliot then said it owned a more than 2.5 percent stake in the firm.
Since then, Elliott has issued two more letters, demanding the demerger of Hyundai Mobis in August and the share buyback.