Hyundai Motor to buy KEPCO land for 10.5 tln won

Hyundai Motor Group won the bid to buy the lucrative land asset of the state-run Korea Electric Power Corp. (KEPCO) by offering 10.55 trillion won ($10.14 billion), the power provider said Thursday.

Hyundai Motor beat Samsung Electronics to buy the 79,345-square-meter site, seen as the last sizable piece of land available for development in Seoul, to build its new global business center in the affluent Gangnam district. It was estimated to be worth more than 3.3 trillion won.

Hyundai Motor Group made its bid for the land through a consortium with two of its affiliates -- Kia Motors and Hyundai Mobis.

The world's fifth-largest car maker said it will build a global business center that incorporates its affiliates, a hotel and an auto theme park modeled after Germany's Autostadt by 2020, which will "become the group's new symbol."

"Hyundai Motor will build a global business center on the KEPCO land site, which represents the second leap for the group," the company said in a release. "Through the project, we will improve the value of the auto industry, and contribute to the national economy by attracting foreigners in the automotive industry and tourists."

The company's higher-than-expected bidding price, which is nearly triple the appraised estimate, was enough to beat that of Samsung Electronics, the flagship unit of the nation's No. 1 conglomerate. 

Samsung Electronics, the world's largest handset maker and chip manufacturer, had eyed the site close to its headquarters in Gangnam to develop an information and communication technology center. Its bidding price was not immediately known. 

"Because the price was decided in consideration of future value, it is not too much," a senior company official at Hyundai said, speaking on condition of anonymity. 

The property was put up for sale as KEPCO is scheduled to move its headquarters to Naju, 350 kilometers south of Seoul, in November as part of the government's plan to relocate state-run companies for balanced national development. 

The land sale is expected to help the state-run company's efforts to cut its debt of 107.4 trillion won by 14.7 trillion won by 2016. 

KEPCO said it plans to sign a deal by Sept. 26. Hyundai has to complete payment within one year of signing a contract, which can be divided into three installments every four months. 

"As the selling price was set at a much higher level than expectations, it would greatly help the company's efforts to improve its finances," a KEPCO official said. "The company will be able to surpass the government's goal of reducing the debt ratio."

The power company's ratio of total debt to assets was 207.13 percent in the second quarter. 

Considering the site's book value of 2 trillion won, KEPCO is expected to reap a profit worth 8 trillion won. "If KEPCO spends all of its profit in paying off its debt, it would reduce about 30 percent of the debt ratio," said Kim Sang-ku, a researcher at Kiwoom Securities. 

The development of the land also ties in with the government's plans to transform the area into an international business center to fuel the country's convention industry.

The bid results lifted the share price of KEPCO but weighed down on Hyundai Motor and its affiliates in the consortium. 

On Thursday, KEPCO's share price jumped 5.82 percent to 46,400 won in the main KOSPI market, compared to a 0.72 percent decrease in the benchmark KOSPI.

Hyundai Motor, the nation's second-largest company by stock value, tumbled 9.17 percent to 198,000 won as foreign investors dumped its shares on the bidding price that far surpassed market expectations. It was the deepest intra-day plunge in three years for the company.

Its sister firm, Kia Motors, sank 7.8 percent to 54,400 won and auto parts maker Hyundai Mobis slipped 7.89 percent to 257,000 won.

"Cashable assets of the three companies in the consortium are estimated at about 30 trillion won, so the sharp fall of their stock prices are not directly related to their financial risk," a Seoul-based securities analyst said, asking for anonymity. "But if that amount of money is spent on research and investment, it would be much more meaningful for the carmaker in the rapidly changing auto market." 

Seo Sung-moon, a researcher at Korea Investment and Securities, argued that Hyundai's real estate investment will improve its brand value, saying that the invisible value created through the land purchase will offset the negative impact. (Yonhap)