U.S.-based activist hedge fund Elliott Management once again pressured Hyundai Motor Group (HMG) to take bold and decisive action to remedy the underperformance of its major subsidiaries.
In a letter sent to the automotive group, Elliott Advisors, a subsidiary of Elliott Management in Hong Kong, urged it to buy its own shares with excess cash, sell off non-core assets and add new independent directors to its board.
The activist fund said in April that it had shares worth $1 billion in common stocks of Hyundai Motor, Kia Motors and Hyundai Mobis. Earlier this year Elliott forced HMG to scrap its governance reform plan by opposing it on the grounds that it lacked measures to enhance shareholder interests.
According to media reports, Elliott called on HMG to return to shareholders 12 trillion won ($10.6 billion) in cash sitting on the books of Hyundai subsidiaries. It advised HMG to use the cash to buy back shares of its major units.
It also urged Hyundai to conduct a strategic review of non-core assets, including the land lot in Seoul it purchased in 2014 to build group headquarters, and add new independent directors to its board.
The hedge fund reminded that it reserves the right to put its recommendations to shareholders at the next annual general meeting if HMG fails to respond to them appropriately.
Elliott's demands are not new.
“Elliott reiterated its earlier demand that Hyundai Motor and Hyundai Mobis return its excess capital to shareholders," said Kang Sung-jin, a researcher at KB Securities.
Eliott’s latest move came following a recent plunge in the stock prices of the three key HMG affiliates. Hyundai Motor traded at around 160,000 won in January this year, but recently fell to 99,000 won, while Kia Motors, which traded at 34,000 won in February this year, recently dropped to 28,000 won.
In the third quarter, Hyundai Motor and Kia Motors delivered an earnings shock, and Standard & Poor's lowered their credit ratings.
Due to the sharp decline in the stock prices of the three affiliates, Elliott is believed to have suffered a valuation loss of about US$500 million.
Elliott’s letter is believed to be designed to put pressure on the three companies to adopt more shareholder-friendly policies and drum up support from other shareholders.
"As Hyundai Automotive Group is expected to present a new governance reform proposal, Elliott probably wanted to persuade shareholders to support its demands," Kang said.
After reviewing Elliot's letter, Hyundai Motor Group decided not to take an official position.