Hyundai Motor's stake sale bid overturns fate of affiliates

Hyundai Motor Group's failed bid to sell stakes in its logistics affiliate, Hyundai Glovis Co., led to an exodus of investors for the second consecutive day on Wednesday, while analysts expected the owner family premium will now move to Hyundai Mobis Co., an auto parts maker at the center of the conglomerate's cross-shareholdings.

Hyundai Motor Chairman Chung Mong-koo and his only son, Chung Eui-sun, 44, the vice chairman of the group, tried to sell 1.8 million and 3.2 million shares each in Hyundai Glovis in an apparent move to prepare for a managerial transfer and circumvent stricter antitrust regulations against corporate owners and families who own stakes of more than 30 percent in affiliates.

The stake sale, had it been successful, would have lowered the two Chungs' stakes in Glovis to just under 30 percent from the current combined 43.39 percent.

Industry sources said the sale, offered in a block deal, fell through because of an unmatched price, among other reasons.

After the move surprisingly fell through on Tuesday, Glovis' shares plunged to the 15 percent daily limit on the Seoul bourse, the steepest fall since August 2007, and lost 9.22 percent more on Wednesday to close at 231,500 won ($213.82).

Hyundai Mobis vaulted 12 percent on Tuesday to its highest level in six years but retreated 3.95 percent to 255,500 won on Wednesday as investors locked in profits from the previous day's sharp gain. The benchmark KOSPI inched down 0.18 percent.

A successful deal would have raised at least 1.5 trillion won that could have been used by the junior Chung to pay inheritance taxes.

Although Hyundai Motor said it is not planning to retry the stake sale, the latest move raised speculation that the junior Chung is preparing to sell his holdings in Glovis and acquire shares in Mobis, in which he has none.

Analysts say the failed attempt, at least for now, served as a catalyst to overturn the fate of the two affiliates: Forget about "long on Glovis, short on Mobis."

"If the junior Chung (cashes in on Glovis shares) to buy Mobis shares, the market premium related to the owner family's shareholding will move to Mobis," said Kim Jun-sung, a researcher at Meritz Securities Co. 

When the junior Chung acquired 6.9 million shares in Kia Motors Co. in February and November 2005, its market value jumped as much as 2.5 times to 9.22 trillion won by the end of that year.

Hyundai Mobis sits atop the cross-shareholding structure because it owns a stake in Hyundai Motor, which in turn controls Kia Motors Co., who completes the cyclical ownership by owning a portion of Hyundai Mobis.

Hyundai Mobis, the fifth-largest firm by market capitalization, was considered an undervalued stock because market watchers believed that the cheaper Mobis shares would make it easier for the junior Chung to acquire its shares and take over leadership from his 76-year-old father. 

"After all, traders tend to invest in shares with a high ratio of the owner family shareholdings," said Lee Jae-il, a researcher at Shinyoung Securities. "Investors will shift their stance on signs that large shareholders may sell Glovis to buy Mobis."

Glovis gained 26 percent in 2014, far outdoing Hyundai Motor and Hyundai Mobis, which fell 29 percent and 20 percent, respectively.

"Shares of Hyundai Mobis will be normalized since factors that led to the price discount of its shares over the past three years have eased," said Kim Jin-woo, a researcher at Korea Investment & Securities, raising the firm's target price from 320,000 won to 360,000 won. (Yonhap)