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Hyundai mulling over governance overhaul

Hyundai Motor Group's headquarters in Yangjae-dong, Seoul / Courtesy of Hyundai Motor Group
Hyundai Motor Group's headquarters in Yangjae-dong, Seoul / Courtesy of Hyundai Motor Group

By Nam Hyun-woo

Hyundai Motor Group Chairman Chung Euisun exits a Hyundai Nexo hydrogen fuel-cell electric vehicle to attend the government's hydrogen energy committee meeting at the Government Complex in Seoul, Oct. 15. Yonhap
Hyundai Motor Group Chairman Chung Euisun exits a Hyundai Nexo hydrogen fuel-cell electric vehicle to attend the government's hydrogen energy committee meeting at the Government Complex in Seoul, Oct. 15. Yonhap
Hyundai Motor Group is contemplating an overhaul of its tangled inter-affiliate shareholding structure, after Chung Euisun became new chairman of the automobile conglomerate.

Since Chung currently owns relatively small stake in the group's key units ― Hyundai Motor, Kia Motors and Hyundai Mobis ― strengthening his stake ownership is emerging as an important task for the group to stabilize its management and defend against excessive influence from hostile outside investors.

According to the Korea Exchange, Hyundai Glovis' share price rallied by 23 percent to 184,500 won, Oct. 16, from 150,000 won, Oct. 12. The share price rose 10 percent Oct. 13, when Chung's appointment as chairman was first reported, and has been showing an uptrend since then.

Hyundai Glovis is a logistics unit of Hyundai Motor Group in which Chung is the largest shareholder with a 23.29 percent stake. Analysts interpreted this as investors' anticipation that Hyundai Motor Group will refurbish its shareholding structure soon and Hyundai Glovis will play a significant role because the overhaul will be aimed at strengthening Chung's personal control of the group.

"Though it is seen as a short-term rally, we hold an optimistic view on Hyundai Glovis, because Chung's chairmanship is expanding hopes of an overhaul of the group's shareholding structure and business portfolio," Daishin Securities analyst Yang Ji-hwan said.

Chung also dropped hints at this. During his appearance at a government event, Chung said he is contemplating how to improve Hyundai Motor Group's shareholding structure.

With the market seeing the governance overhaul as imminent, multiple scenarios are emerging. Of them, industry officials say the group will likely come up with an improved version of its botched 2018 overhaul plan, which was strongly opposed by U.S. activist fund Elliott.

Hyundai Motor Group has four complex cross shareholding loops, and the group's auto parts affiliate Hyundai Mobis plays a role as de facto holding firm by controlling a 21.43 percent stake in Hyundai Motor. Chung's father and former Chairman Chung Mong-koo holds a 7.13 percent stake in Hyundai Mobis, which is the second largest following Kia Motors with a 17.28 percent, but the younger Chung owns just a 0.32 percent stake in the company.

Due to this, in March 2018 the group proposed a plan to spin off Hyundai Mobis' module/after-service divisions and merge them with Hyundai Glovis by swapping stock. This was anticipated to improve Hyundai Glovis' market value, thus providing resources for Chung to increase his stake in Hyundai Mobis. Through additional stake exchanges, the group sought to simplify its shareholding structure into a vertical chain allowing Chung to control Hyundai Mobis, which in turn controls Hyundai Motor and Kia Motors.

However, this plan faced opposition from Elliott and a number of other investors that questioned the stake swap ratio and shareholder return policies in the proposed process. Hyundai Motor Group withdrew the plan, with Chung saying in a statement that "the group will fully reflect the views and advice" of relevant parties next time.

Due to this, Industry officials said the new overhaul plan will likely be based on the previous version but will make more improvements in terms of shareholder value.

In the new plan, the spun-off Hyundai Mobis could be listed before merging with Hyundai Glovis through a stock swap. By listing the firm, its proper market value will be set, thus the group can avoid controversies in setting the stock swap ratio with Hyundai Glovis. Though this will take time, the group can prevent a case similar to Elliott recurring, officials said.

"Though it is hard to pick a scenario, it is certain that the group will stick to two principles in overhauling its shareholding structure," KB Securities analyst Kang Seong-jin said. "First, the overhaul will be pursued in a market-friendly way. We believe the 2018 plan failed because the group faced difficulties in persuading investors, and the group will not repeat the same mistake, meaning it will avoid any controversial processes in pursuing the overhaul this time."

Kang added that the overhaul will also be directed at winning general shareholders' support, given Chung's moves as the executive vice chairman in the past two years, which drew favorable responses from shareholders.

"In the past, the group purchased land through an overpriced bid, which was unexpected by investors and caused a market stir," Kang said referring to Hyundai Motor Group's 10.5 trillion won acquisition of a 790,000 square-meter plot of land near Samseong Station in Seoul in 2014.

"After an overhaul in shareholding structure, however, Hyundai Motor Group will not be able to make managerial decisions based on unilateral opinions of the owner, given Chung's stake will not be enough to make such decisions after the group breaks its shareholding loops."

Hyundai Steel's plant in Dangjin, South Chungcheong Province / Courtesy of Hyundai Steel
Hyundai Steel's plant in Dangjin, South Chungcheong Province / Courtesy of Hyundai Steel

Hydrogen economy

Along with the overhaul in shareholding structure, the group is anticipated to expedite its efforts to expand its hydrogen business under Chung's leadership.

According to industry officials, Hyundai Steel, the steelmaking unit of the group, will break ground for its bi-polar plate plant No. 2 in the second half of next year. Bi-polar plates are key components for hydrogen fuel cell power stacks, connecting and separating individual fuel cells in series and providing reactant gases while preventing oxygen and hydrogen from mixing.

When the plant is completed in 2022, Hyundai Steel will increase bi-polar plate production capacity to support batteries for 30,000 hydrogen fuel-cell electric vehicles, up from the current 16,000.

The steelmaker will also fully operate hydrogen byproduct facilities at its plants in Dangjin, South Chungcheong Province, from next year to produce 3,500 tons of hydrogen annually.

Hyundai Glovis will also play an important role in the group's hydrogen initiative. From next year, Hyundai Glovis will transport hydrogen produced at Hyundai Steel plants to hydrogen charging stations in Seoul and the surrounding Gyeonggi Province.

Along with land transport, Hyundai Glovis plans to make investments in building and acquiring vessels for shipping liquefied hydrogen, so the country can import hydrogen from overseas markets, including Australia.

"To realize the hydrogen economy, it is important to establish a stable hydrogen distribution network," a Hyundai Glovis official said. "As a global logistics firm, Hyundai Glovis will showcase its expertise in shipping hydrogen so Korea can consolidate its status as an advanced nation in the hydrogen economy."


Hyundai Motor Group's headquarters in Yangjae-dong, Seoul / Courtesy of Hyundai Motor Group
Hyundai Motor Group's headquarters in Yangjae-dong, Seoul / Courtesy of Hyundai Motor Group

By Nam Hyun-woo

Hyundai Motor Group Chairman Chung Euisun exits a Hyundai Nexo hydrogen fuel-cell electric vehicle to attend the government's hydrogen energy committee meeting at the Government Complex in Seoul, Oct. 15. Yonhap
Hyundai Motor Group Chairman Chung Euisun exits a Hyundai Nexo hydrogen fuel-cell electric vehicle to attend the government's hydrogen energy committee meeting at the Government Complex in Seoul, Oct. 15. Yonhap
Hyundai Motor Group is contemplating an overhaul of its tangled inter-affiliate shareholding structure, after Chung Euisun became new chairman of the automobile conglomerate.

Since Chung currently owns relatively small stake in the group's key units ― Hyundai Motor, Kia Motors and Hyundai Mobis ― strengthening his stake ownership is emerging as an important task for the group to stabilize its management and defend against excessive influence from hostile outside investors.

According to the Korea Exchange, Hyundai Glovis' share price rallied by 23 percent to 184,500 won, Oct. 16, from 150,000 won, Oct. 12. The share price rose 10 percent Oct. 13, when Chung's appointment as chairman was first reported, and has been showing an uptrend since then.

Hyundai Glovis is a logistics unit of Hyundai Motor Group in which Chung is the largest shareholder with a 23.29 percent stake. Analysts interpreted this as investors' anticipation that Hyundai Motor Group will refurbish its shareholding structure soon and Hyundai Glovis will play a significant role because the overhaul will be aimed at strengthening Chung's personal control of the group.

"Though it is seen as a short-term rally, we hold an optimistic view on Hyundai Glovis, because Chung's chairmanship is expanding hopes of an overhaul of the group's shareholding structure and business portfolio," Daishin Securities analyst Yang Ji-hwan said.

Chung also dropped hints at this. During his appearance at a government event, Chung said he is contemplating how to improve Hyundai Motor Group's shareholding structure.

With the market seeing the governance overhaul as imminent, multiple scenarios are emerging. Of them, industry officials say the group will likely come up with an improved version of its botched 2018 overhaul plan, which was strongly opposed by U.S. activist fund Elliott.

Hyundai Motor Group has four complex cross shareholding loops, and the group's auto parts affiliate Hyundai Mobis plays a role as de facto holding firm by controlling a 21.43 percent stake in Hyundai Motor. Chung's father and former Chairman Chung Mong-koo holds a 7.13 percent stake in Hyundai Mobis, which is the second largest following Kia Motors with a 17.28 percent, but the younger Chung owns just a 0.32 percent stake in the company.

Due to this, in March 2018 the group proposed a plan to spin off Hyundai Mobis' module/after-service divisions and merge them with Hyundai Glovis by swapping stock. This was anticipated to improve Hyundai Glovis' market value, thus providing resources for Chung to increase his stake in Hyundai Mobis. Through additional stake exchanges, the group sought to simplify its shareholding structure into a vertical chain allowing Chung to control Hyundai Mobis, which in turn controls Hyundai Motor and Kia Motors.

However, this plan faced opposition from Elliott and a number of other investors that questioned the stake swap ratio and shareholder return policies in the proposed process. Hyundai Motor Group withdrew the plan, with Chung saying in a statement that "the group will fully reflect the views and advice" of relevant parties next time.

Due to this, Industry officials said the new overhaul plan will likely be based on the previous version but will make more improvements in terms of shareholder value.

In the new plan, the spun-off Hyundai Mobis could be listed before merging with Hyundai Glovis through a stock swap. By listing the firm, its proper market value will be set, thus the group can avoid controversies in setting the stock swap ratio with Hyundai Glovis. Though this will take time, the group can prevent a case similar to Elliott recurring, officials said.

"Though it is hard to pick a scenario, it is certain that the group will stick to two principles in overhauling its shareholding structure," KB Securities analyst Kang Seong-jin said. "First, the overhaul will be pursued in a market-friendly way. We believe the 2018 plan failed because the group faced difficulties in persuading investors, and the group will not repeat the same mistake, meaning it will avoid any controversial processes in pursuing the overhaul this time."

Kang added that the overhaul will also be directed at winning general shareholders' support, given Chung's moves as the executive vice chairman in the past two years, which drew favorable responses from shareholders.

"In the past, the group purchased land through an overpriced bid, which was unexpected by investors and caused a market stir," Kang said referring to Hyundai Motor Group's 10.5 trillion won acquisition of a 790,000 square-meter plot of land near Samseong Station in Seoul in 2014.

"After an overhaul in shareholding structure, however, Hyundai Motor Group will not be able to make managerial decisions based on unilateral opinions of the owner, given Chung's stake will not be enough to make such decisions after the group breaks its shareholding loops."

Hyundai Steel's plant in Dangjin, South Chungcheong Province / Courtesy of Hyundai Steel
Hyundai Steel's plant in Dangjin, South Chungcheong Province / Courtesy of Hyundai Steel

Hydrogen economy

Along with the overhaul in shareholding structure, the group is anticipated to expedite its efforts to expand its hydrogen business under Chung's leadership.

According to industry officials, Hyundai Steel, the steelmaking unit of the group, will break ground for its bi-polar plate plant No. 2 in the second half of next year. Bi-polar plates are key components for hydrogen fuel cell power stacks, connecting and separating individual fuel cells in series and providing reactant gases while preventing oxygen and hydrogen from mixing.

When the plant is completed in 2022, Hyundai Steel will increase bi-polar plate production capacity to support batteries for 30,000 hydrogen fuel-cell electric vehicles, up from the current 16,000.

The steelmaker will also fully operate hydrogen byproduct facilities at its plants in Dangjin, South Chungcheong Province, from next year to produce 3,500 tons of hydrogen annually.

Hyundai Glovis will also play an important role in the group's hydrogen initiative. From next year, Hyundai Glovis will transport hydrogen produced at Hyundai Steel plants to hydrogen charging stations in Seoul and the surrounding Gyeonggi Province.

Along with land transport, Hyundai Glovis plans to make investments in building and acquiring vessels for shipping liquefied hydrogen, so the country can import hydrogen from overseas markets, including Australia.

"To realize the hydrogen economy, it is important to establish a stable hydrogen distribution network," a Hyundai Glovis official said. "As a global logistics firm, Hyundai Glovis will showcase its expertise in shipping hydrogen so Korea can consolidate its status as an advanced nation in the hydrogen economy."


Nam Hyun-woo namhw@koreatimes.co.kr


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