Hyundai Motor to buy back $616M in shares

Hyundai Motor and Kia Motors will buy back a combined 670 billion won ($616 million) of stock after their purchase of property in Gangnam District for three times the assessed price spurred a sell-off.

Hyundai, South Korea’s largest automaker, will buy back 2.2 million common shares and 652,019 preferred shares, while affiliate Kia will buy back 4.05 million common shares, both at Monday’s closing prices, according to separate regulatory filings by the companies Monday. The buybacks will be completed by Feb. 11 to “stabilize share prices and improve shareholder value,” the companies said.

The announcement comes almost two months after the automakers and Hyundai Mobis won an auction for prime property in Gangnam District, offering triple the assessed price to state-run Korea Electric Power Corporation. Hyundai shares slumped 24 percent since the deal was announced on Sept. 18 through Monday, compared with a loss of 5.1 percent for Korea’s benchmark Kospi Index.

“Today’s announcement helps ease concerns that Hyundai may cut dividend payout and is meaningful in that the companies have taken an actual step to improve shareholder value,” said Heo Pil-seok, chief executive officer at Midas International Asset Management, which oversees $10 billion, including Hyundai shares. “It will definitely improve investor sentiment and bring up market expectation for an increase in dividend.”

Hyundai climbed 5.7 percent to 176,000 won at the close in Seoul trading yesterday, while Kia rose 2 percent and the Kospi gained 0.2 percent.

Last month, Hyundai said on behalf of the land-deal consortium that the three companies won’t issue debt and will use cash to fund the 10.6 trillion won purchase.

This damped investor optimism that the companies may increase their dividend payouts. The government had announced plans in August to encourage businesses to increase wages and dividends by levying a 10 percent punitive tax on corporate cash hoards.

Both Hyundai’s CFO Lee Won-hee and Kia’s then-CFO and recently promoted co-CEO Park Han-woo said the companies are considering an interim dividend payout at their third-quarter earnings conference call last month to ease investor discontent. That wasn’t enough to bring share prices back to pre-land deal levels. The three companies lost about $16 billion in combined market value through Monday.

Investors are still waiting for Hyundai to increase dividends, said Lee Jin-woo, a Seoul-based fund manager at KTB Asset Management, which oversees about $7.9 billion.

“Buying back shares is better than doing nothing,” Lee said by phone. “Still, a dividend payout is what investors are waiting for and what will really get overseas investors to change their bearish view on Hyundai.”

Bloomberg