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Hyundai Motor Group headquarters in Seoul

The US-based hedge fund Elliott is renewing its pressure campaign against the Hyundai Motor Group for the return of excess capital to shareholders and disposal of non-core assets.

Analysts read the push as intended to influence governance structure changes currently being discussed by the group. The Hyundai Motor Group has indicated it does not plan to respond individually to what it describes as “vulture” tactics by Elliott, which it sees as picking at company weaknesses in order to maximize profits.

Elliott Advisors Hong Kong, an affiliated fund investment advisory company, announced on Nov. 14 that it had shared copies of an “Independent Analysis” report by the global automobile consultancy Conway MacKenzie the day before in letters sent to directors at Hyundai Motor, Kia Motors, and Hyundai Mobis. With the report, Elliott noted that the Hyundai Motor Group had a severe surplus of capital, including 8–10 trillion won (US$7.1–8.8 billion) for Hyundai Motor and 4–6 trillion won (US$3.5–5.3 billion) for Hyundai Mobis, which it asked to be returned to shareholders. Elliott reportedly owns US$1 billion (around 1.05 trillion won) in Hyundai Motor, Kia Motors, and Hyundai Mobis common stock.

Elliott also demanded the disposal of non-core assets, claiming that a “history of questionable use of cash flow has resulted in non-operating assets tying up valuable capital.”

It went on to recommend a “strategic review of any and all non-core assets.”

The demand appeared to be in reference to a Korean Electric Power Corporation (KEPCO) site in Seoul’s Gangnam district purchased by the Hyundai Motor Group’s three mainstay companies in Sept. 2014 at a cost of 10 trillion won (US$8.8 billion). Elliott went to urge priority consideration of the purchasing of treasury stock in view of the underestimation of current value. It also demanded that additional independent outside directors be appointed to the boards of the different affiliates.

“Since HMG’s withdrawal of its original restructuring plan earlier this year [. . .] communication on the much-needed reform has been neither proactive nor transparent,” it said.

The Hyundai Motor Group declined to issue a formal response. In the past, it responded immediately to two previous offensives by Elliott.

“We do not perceive a need to respond individually to the actions of a ‘vulture fund’ that possesses a stake of roughly 1%,” a group official said.

The term “vulture fund” is used to refer to funds that exploit company weaknesses to make profits.

Market observers said Elliott’s letter was nothing new.

“They were trotting back out their previous calls for the return of Hyundai Motor and Hyundai Mobis’s excessive cash reserves to shareholders,” said KB Securities analyst Kang Seong-jin.

“This looks to be an effort to seize the advantage at a future shareholders’ meeting by preemptively winning over other shareholders in anticipation of a new governance structure plan by the Hyundai Motor Group,” Kang said.

In May, the Hyundai Motor Group presented a governance structure reorganization plan that involved separating Hyundai Mobis’s module and after-service (AS) component projects and merging them with Hyundai Glovis. It was subsequently withdrawn after objections from Elliott and other domestic and overseas consultancies with voting rights.

At the time, Elliott demanded additional measures in connection with the group’s governance structure plan, including increased returns to shareholders; it later proposed a merger between Hyundai Motor and Hyundai Mobis. The Hyundai Motor Group is currently working on fleshing out and improving its new governance structure plan.

Stock values for Hyundai Motor Group affiliates showed an overall rise on the market that day. Hyundai Glovis and Kia Motors both rose by more than 2% from the day before at 2.94% and 2.30%, respectively, while Hyundai Mobis finished up at 1.88%. Hyundai Motor and Hyundai Motor Services both experienced slight dips of 0.98% and 0.76%, respectively.

By Hong Dae-seon, staff reporter

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