Tumbling Down

 

On Nov. 4, Hyundai Motor Company recorded an aggregate market value of 34.1429 trillion won (US$31.3 billion), to be overtaken by SK Hynix. The former’s market cap has decreased by over 8 trillion won in just six weeks due to the weak yen and the controversy over its purchase of the Korea Electric Power Corporation (KEPCO) building located in Samsung-dong, Seoul.

Hyundai Motor was the company with the second-largest market cap in the Korean stock market on March 29, 2011, even beating POSCO. However, investors have shunned the automaker since mid-September 2014 due to the excessively high price paid for a real estate purchase on Sept. 18. The final contract price was 10.55 trillion won (US$9.7 billion), more than three times higher than the appraised value.

The winner’s curse has followed since then. Foreign investors have turned their backs, and the company's stock price has plummeted. During the six weeks after the purchase, Hyundai lost 23.7 percent of its stock price and 8.3 trillion won (US$7.6 billion) in market capitalization. According to a local consulting firm, at least 10 trillion won (US$9.2 billion) is estimated to be required for the development of the site where the building is housed, and commercial-purpose investment there is likely to lead to a loss of approximately 2 trillion won (US$1.8 billion). At present, KEPCO’s aggregate market value is 30.397 trillion won (US$27.9 billion), and the ranking may change again.

The ongoing weak yen is posing difficulties for the carmaker as well. The company is also waiting for the first trial verdict of the ordinary wage lawsuit filed by its labor union scheduled for Nov. 7. If the union wins, the Hyundai Motor Group will have to spend 13.2 trillion won (US$12.0 billion) in extra labor costs, including 5 trillion won (US$4.6 billion) for Hyundai Motor Company, in the first year from the ruling alone. Hyundai Motor Company’s U.S. market share, in the meantime, fell below the 4 percent mark last month for the first time since December 2010. “The weak yen is likely to keep affecting the stock price of Hyundai for the time being,” a stock market analyst commented.

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