Advisory Firms Set to Disclose Views on Hyundai Motor’s Restructuring Plan

With US hedge fund Elliott Management officially announcing that it would vote against Hyundai Motor Group's governance reform plan, proxy advisory firms at home and abroad, including Institutional Shareholder Services Inc. (ISS), the world’s leading provider of corporate governance and responsible investment solutions, plan to announce their positions on the issue soon.

The views of these proxy advisory firms are expected to have influence on the National Pension Service of Korea (NPS) that holds an important key to Hyundai Motor Group’s restructuring plan.

According to related industry sources on May 13, major proxy advisory firms, such as the ISS and the Korea Corporate Governance Service (KCGS), are planning to disclose their views from May 14 on the plans by South Korea's No. 1 car parts maker Hyundai Mobis Co. to streamline its ownership structure by spinning off its module and after-sale service businesses to Hyndai Glovis.

Hyundai Mobis and Hyundai Glovis Co. will each hold an extraordinary general shareholders’ meeting on May 29 to receive approval on the spin-off and merger deal.

Earlier, Sustinvest Co., a private advisory company in South Korea, also made a recommendation against Hyundai Motor Group's governance reform plan, saying that the merger ratio and purpose were not convincing from the shareholder perspective.

Accordingly, Elliott’s voice can gain strength when major proxy advisory firms at home and abroad take a stance against or express reservations on Hyundai Mobis-Hyundai Glovis deal.

Elliott cannot scrap the Hyundai Mobis-Hyundai Glovis deal since it only owns a 1.5 percent stake in Hyundai Mobis. However, foreign investors, whose combined stakes in the company adds up to 48 percent stake, can stop the deal if proxy advisory companies come up with negative recommendations against it.

Moreover, proxy advisory firms’ recommendations will also make a huge impact on the decision-making process of the NPS, which owns a 9.82 percent stake in Hyundai Mobis. The NPS has the second largest stake for a single shareholder after Kia Motors Corp. with 16.88 percent.

Currently, Hyundai Motor Group’s white knight shareholders have a total of 30.17 percent of Hyundai Mobis, including Hyundai Motor Chairman Chung Mong-koo with 6.96 percent, Kia Motors with 16.88 percent, Hyundai Steel Co. with 5.66 percent and Hyundai Mobis with 0.67 percent.

Under the current commercial law, a spin-off and merger proposal requires approval by more than two-thirds of the voting rights of the shareholders present at a general meeting and at least one-third of the total issued and outstanding shares.

Lim Eun-young, an analyst at Samsung Securities Co., said, “Since the NPS had a rough time over the merger between Samsung C&T and Cheil Industries, it will try to make a decision as objective as possible this time. So, the NPS is expected to consider recommendations of proxy advisory firms at home and abroad as an important indicator.”

Elliott said on May 11 that it would vote against Hyundai Motor Group’s proposed plan to restructure its governance structure. In return, Hyundai Motor vice chairman Chung Eui-sun expressed his intention to adhere to the group's restructuring plan, saying the group will not be swayed by pressure from Elliott.