Promoting IPO of Hyundai Engineering
Hyundai Motor Group chairman Chung Eui-sun has begun a full-fledged restructuring of the group’s governance structure. It is pushing for the listing of Hyundai Engineering, the group's unlisted construction arm, as the first step towards reshaping its cross shareholding structure.
The governance reform move is renewed three years after it was stopped in 2018 due to the opposition of U.S. hedge fund Elliott Management.
Hyundai Engineering recently sent a request for proposal to major domestic and foreign securities companies for an initial public offering (IPO) of its stocks on the KOSPI. If the company selects a lead manager, it can have an IPO within 2021.
Hyundai Engineering's IPO is expected to signal a restructuring of Hyundai Motor Group's overall governance structure. Currently, the group has a cross shareholding structure where Hyundai Mobis controls Hyundai Motor, which in turn controls Kia Corp., which in turn controls Hyundai Mobis.
Hyundai Mobis has a 21.43 percent stake in Hyundai Motor, which has a 33.88 percent stake in Kia Corp., which also has a 17.28 percent stake in Hyundai Mobis. This means that their shares are crossly held.
According to the Fair Trade Commission, Hyundai Motor Group is the only one of the top 30 conglomerates in Korea that has failed to address its cross shareholding issue.
Hyundai Motor Group chairman Chung Eui-sun holds a 0.32 percent stake in Hyundai Mobis, a 2.62 percent stake in Hyundai Motor, a 1.74 percent stake in Kia Corp., a 23.29 percent stake in Hyundai Glovis, and an 11.72 percent stake in Hyundai Engineering, according to the Financial Supervisory Service's electronic disclosure system.
In order for Chung to reach the top of the governance hierarchy, an essential task is securing Hyundai Mobis shares. His father, honorary chairman Chung Mong-koo, has a 7.13 percent stake in Hyundai Mobis.
Currently, Hyundai Engineering's market capitalization in the over-the-counter market is around 7 trillion won to 8 trillion won. As Chung has an 11.72 percent stake in the company, he will be able to secure more than 800 billion won by selling off his stake after the IPO. If his father’s stake (4.68 percent) is also sold off, Chung will be able to secure more than 1.2 trillion won.
When the listing of Hyundai Engineering is completed, Chung is expected to take the next step in governance reform by taking advantage of Hyundai Glovis. As he has the largest stake in Hyundai Glovis, analysts forecast that Hyundai Motor Group will use the affiliate as a key tool in changing the group’s governance structure.
Some experts say that Hyundai Motor Group may split off Hyundai Mobis and merge the split-off company with Hyundai Glovis as it attempted to do in 2018. Although it faced opposition in 2018, if Hyundai Motor Group comes up with a merger ratio that can satisfy both Hyundai Mobis shareholders and Hyundai Glovis shareholders, opposition to the merger plan could be weaker, they say.