HYUNDAI, SHIPPING & LOGISTICS

Hyundai Family Fails to Sell Affiliate Stake in Setback

By Rose Kim
January 13, 2015 1:50 AM EST

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Photographer: SeongJoon Cho/Bloomberg

Chung Mong Koo, chairman and chief executive officer of Hyundai Motor Co. and Kia Motors Corp., right, walks past Chung Eui Sun, vice chairman of Hyundai Motor Co., left, during a new year company meeting at the company's headquarters in Seoul, South Korea, on Jan. 2, 2015.

The patriarch of South Korea’s Hyundai Motor Group and his only son failed to sell a stake in a logistics affiliate, dealing a setback to the family’s succession planning and putting them at risk of violating fair-trade laws.
Hyundai Glovis Co. (086280) fell by the 15 percent daily limit in Seoul trading after Chung Mong Koo, 76, and Chung Eui Sun failed to sell 5 million shares in the conglomerate’s shipping and logistics arm. Some terms weren’t met, the group said in an e-mail today. A successful sale would have raised as much as $1.3 billion that can go toward paying inheritance taxes, and cut their combined holdings from 43.39 percent to the 30 percent required by new laws on related-party deals.
The new regulations target what the government regards as unfair transactions between affiliates of conglomerates, known in South Korea as chaebol, specifically in cases where families hold stakes larger than 30 percent. The group said that while it doesn’t plan to re-offer the Glovis shares, it will adhere to fair-trade laws and reduce related-party business deals.
“The family’s decision to sell Glovis shares, and to sell them to unrelated investors in the market, was completely unexpected,” said Heo Pil Seok, chief executive officer of Midas International Asset Management Ltd., which oversees about $9.7 billion. “Investors were probably worried that this meant the family would be withdrawing their interest in Glovis, and that its share price had reached a high point.”

Fair Trade

Glovis slumped 15 percent, the most since August 2007, to 255,000 won at the close in Seoul trading. The company was the worst performer on the 762-member Kospi index, which fell 0.2 percent. Shares of bigger affiliates Hyundai Mobis Co. (012330) and Hyundai Motor Co. (005380) climbed 12 percent and 1.1 percent, respectively.
Shares of Glovis gained 26 percent in 2014, compared with declines of 29 percent and 20 percent at Hyundai Motor and Hyundai Mobis.
Parliament revised fair-trade laws last year to allow the government to fine chaebol family members if affiliates in which they hold more than a 30 percent stake make a profit from transactions with other group companies. The regulation follows an earlier ban on the creation of new cross shareholdings.
“The company may try to reduce transactions between affiliates to skirt new laws that may put the family in danger,” said Chae Yi Bai, an analyst at the Center for Good Corporate Governance in Seoul.

Power Transition

Like other chaebol including Samsung Group and Hankook Tire Worldwide Co., Hyundai is preparing for a generational power shift from the elder Chung to his 44-year-old son, currently Hyundai Motor’s vice chairman.
That wealth transfer is taking place amid tighter controls and growing activism against corporate practices perceived to harm minority shareholders, including the system of cross shareholdings that has allowed the owner families to control groups despite holding small minority stakes.
Scions hoping to keep control of the groups also face high inheritance taxes. In the younger Chung’s case, selling all of his stakes in listed Hyundai affiliates may only just raise enough cash to inherit his father’s holdings, based on the companies’ closing share prices yesterday.