Hyundai moving toward governance restructuring
Hyundai Motor Group appears to be geared toward streamlining its governance structure, starting with an initial public offering (IPO) of its plant engineering affiliate Hyundai Engineering.
On Wednesday, Hyundai Engineering confirmed that it sent major brokerage firms proposals for an IPO on the country’s main KOSPI bourse.
“The requests were sent on April 9,” a public relations officer of the firm said, referring to reports circulating within the investment banking industry that the IPO will be finalized by the third quarter at the earliest.
Hyundai Engineering posted 7.18 trillion won ($6.43 billion) in sales in 2020, up from 6.8 trillion won in 2019.
Its operating profit, however, fell from 408 billion won to 258.7 billion won during the same time period.
The firm’s IPO price will depend on its performance in the first half of 2021.
This will be the first time in two years that a Hyundai Motor Group affiliate will go public. The previous one was Hyundai Autoever.
The planned IPO would clearly be a substantial plus for Hyundai Motor Group Chairman Chung Euisun, who needs to reach the top of the governance hierarchy after succeeding his father, honorary Chairman Chung Mong-koo, in October 2020.
The monetary value of Hyundai Engineering unlisted is estimated at more than 10 trillion won in the over-the-counter market.
The junior Chung holds an 11.7 percent stake in the company, making him the second-largest shareholder after the group’s construction arm Hyundai E&C which owns a 38.6 percent stake.
This means the Hyundai Motor Group chairman will be able to secure more than 800 billion won by selling off his stake after the IPO.
He would be positioned to secure at least 1.2 trillion won if his father’s stake of 4.7 percent is sold off as well.
The cash could enable him to secure Hyundai Mobis shares, which market observers view as essential to further solidify his management control over the conglomerate, while addressing the issue of cross-shareholding that is restricted by the Fair Trade Commission (FTC).
Hyundai Motor Group, the country’s No. 2 conglomerate, is the only top-tier business group that has failed to address the cross-shareholding structure of its affiliates.
While it is becoming a thing of the past, the practice of cross-shareholding has long been used by the owners of family-controlled conglomerates as a mean to secure control over subsidiaries with a tiny stake in them.
The auto parts-manufacturing affiliate Hyundai Mobis is at the center of Hyundai Motor Group’s complex chain of cross-shareholding governance structure.
Hyundai Mobis has a 21.4 percent stake in Hyundai Motor, which has a 33.9 percent stake in Kia, which also has a 17.3 percent stake in Hyundai Mobis.
This means their shares care cross held and the two have control over one another.
“Taking control over Hyundai Mobis means being able to start taking control over other related affiliates. This is why Chairman Chung will need to increase his stake in Hyundai Mobis in his step toward reshaping the corporate structure,” an industry source said on condition of anonymity.
According to the Financial Supervisory Service’s electronic disclosure system, Chung holds a 0.32 percent stake in Hyundai Mobis, a 2.62 percent stake in Hyundai Motor and a 1.74 percent stake in Kia.
“And this is where the IPO of Hyundai Engineering can come in, bringing a lot of cash for the chairman to buy Hyundai Mobis shares,” the source added.
Of course, there will be more steps to be taken for Chung to simplify the governance structure and fulfill the FTC regulations.
These will include “unlocking” the cross-shareholding between Hyundai Mobis and Kia, and making sure his and his father’s shares combined do not exceed 20 percent in a single affiliate.
For instance, the two collectively own a 29.9 percent stake in Hyundai Glovis.
In 2018, Hyundai Motor Group sought to restructure its ownership structure, but failed due to opposition by U.S. hedge fund Elliott Management.