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Hyundai Motor Group’s Land Purchase Backfires in Stock Market
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Hyundai Motor Group’s Land Purchase Backfires in Stock Market
  • By matthew
  • September 22, 2014, 06:23
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The Korea Electric Power Corporation headquarters building in Gangnam, Seoul. It is located within walking distance of Samseong Subway Station.
The Korea Electric Power Corporation headquarters building in Gangnam, Seoul. It is located within walking distance of Samseong Subway Station.

 

Hyundai Motor Group Chairman Chung Mong-koo is very satisfied with the group’s purchase of the Korea Electric Power Corporation (KEPCO) site in Samsung-dong, despite the high acquisition price of 10.55 trillion won (US$10.15 billion), which more than tripled the appraised value of 3.3 trillion won (US$3.17 billion).

According to the company, the chairman had a meeting in the morning of Sept. 18 with the executive members who participated in the bidding, saying that the land acquisition was an essential investment for the future and asking them to put every effort forward for the construction of the new main office building at the site.

Some experts have mentioned that Hyundai failed in its tug of war against the Samsung Group because Samsung’s bid price is known to be much lower than Hyundai’s. However, a Hyundai executive said that the group is very content with the result of the tender. The Hyundai Motor Group is planning to build its new office building there by 2023 along with an automobile theme park, hotel, and convention center.

Nevertheless, the news about the land purchase backfired against the group in the local stock market. Concerns over the winner’s curse dragged down the prices of Hyundai Motor Group shares. Specifically, the Hyundai Motor Company share lost 10.6 percent in the two trading days following the acquisition, and its market capitalization decreased by 5.6 trillion won (US$5.4 billion). Hyundai Mobis and Kia Motors lost an aggregate market value of 2.5 trillion won (US$2.4 billion) and 1.6 trillion won (US$1.5 billion) as well, respectively.

“The Hyundai Motor Group, excluding the banking arm, had a net cash equivalent of 20.7 trillion won [US$19.9 billion] as of the end of 2013, and the purchase is expected to have a very limited effect at best on its financing and fiscal stability, despite the wide gap between the appraised value and the undertaking cost,” said Woori Investment & Securities Research Analyst Jo Su-hong. He continued, “The plunge can be attributed to the disappointment on the part of the shareholders who expected that the abundant liquidity of the group would lead to R&D investment or dividend payment.”