National Pension Service opposes Hyundai Mobis' treasury share plan

Hyundai Mobis headquarters in southern Seoul / Yonhap

The National Pension Service (NPS) opposed Hyundai Mobis' proposed disposal method for treasury stock at the company’s annual shareholders’ meeting on Tuesday, arguing the move runs counter to the purpose originally stated when the shares were first bought back.

The auto parts manufacturer said earlier that it would use up to 500,000 shares out of the 1.05 million it holds for employee compensation and an employee stock ownership plan. This amount represents roughly 0.5 percent of the company’s total outstanding shares.

National Pension Service Chairman Kim Sung-joo / Courtesy of National Pension Service

“At the time of the buyback, the publicly stated objective was to enhance shareholder value through stock price stabilization,” NPS said, adding that distributing the shares for employee compensation does not align with Mobis' stated objective when it first repurchased shares.

Despite the pension fund’s objection, the plan was approved at the meeting.

Cancelling treasury shares is widely viewed as key to shareholder returns, as reducing the number of outstanding shares increases the value of those remaining. When the shares are distributed internally, they can make their way back into the market, blunting the intended effects.

Hyundai Mobis CEO Lee Gyu-suk / Courtesy of Hyundai Mobis

The NPS said its decision was made in line with its internal guidelines, which call for voting against agenda items deemed likely to undermine shareholder value or run counter to the interests of the fund.

The state pension fund currently holds 8.3 million shares in Hyundai Mobis, a 9.15 percent stake.

It has recently signaled a more assertive approach to shareholding voting, saying it will in principle oppose proposals that run counter to the spirit of recent revisions to the Commercial Act, particularly where they may fall short of adequately protecting minority shareholders.

Last November, Hyundai Mobis said it will cancel treasury shares over a three-year period with the aim of lifting its total shareholder return to above 30 percent.