Hyundai Shaking off bid shock

By Park Jin-hai

Hyundai Motor’s surprisingly bigger-than-expected bid for Korea Electric Power Corp.’s land in Samseong-dong, southern Seoul, is expected to have only a minor impact on its share prices, analysts said Friday.

Hyundai Motor extended its fall for the second straight day, closing down 1.52 percent or 3,000 won, at 195,000. Its affiliate Kia Motors closed with a 0.92 percent increase, or 500 won, at 54,900 won. The benchmark Korea Composite Stock Price Index (KOSPI) closed with a 0.30 percent increase or 6.08 points at 2,053.82.

Most analysts said the market had already factored in the financial risk involving the bid to buy the state-run power company’s land.

Hyundai Motor Group offered 10.6 trillion for the property in an apparent attempt to beat the Samsung Group. Given that the market value is in the range of 4.5-6.5 trillion won, the offer is three times the market value.

Hyundai Motor stock fell 9.17 percent the previous day, hit by the news that its offer was far higher than the market expected and would add to its financial burden. The stock attempted to bounce back on Friday, but closed the week lower.

Analysts said more-fundamental factors would determine the stock’s direction, and that the impact of the offer would be short-lived.

“The financial burden is within the scope of its three affiliated companies, which formed a consortium for the bid,” said KB Investment and Securities analyst Shin Chung-kwan.

He said the offer accounted for 34.7 percent of the operating profits the three group companies made in 2013, or 39.7 percent of cash reserves put aside in the first half of this year.

“Investment sentiment has been hurt by the news,” Shin said. “But considering that the offer will not be increased, [and] the investment in the property will last for more than five years . . . it will not pull down Hyundai Motor Group’s shares.”

The news that Hyundai Motor Group won the bid to buy the lucrative estate had pulled down the KOSPI in the previous session and sent shock waves among investors.

But the tremor is unlikely to last long.

“Due to the project, shareholders’ chances to have bigger dividends have been thinned, depleting the fund that could be spent in developing a future growth engine,” said IBK Securities analyst Hong Jin-ho. “However, the correction phase on the stock market will be short-lived.”

Samsung Securities downgraded its investment position for Hyundai Motor shares to “neutral” from “overweight.”

“Almost 80 percent of all expenses will be covered by the automobile and parts companies, the heart of the giant Hyundai Motor Group,” it said. “That means that the group’s priority is not on the growth of those key automobile companies.”

Some analysts pointed out that the land procurement plan raised the automobile group’s risk factor.

“The mid- to long-term effect on its shares will be decided by tangible and intangible values the property will create,” said Hana Daetoo Securities analyst Song Sun-jae.