Hyundai’s Chungs fail to sell stake in affiliate

The patriarch of Korea’s Hyundai Motor Group and his only son failed to sell a stake in a logistics affiliate, dealing a setback to the family’s succession planning and putting them at risk of violating fair-trade laws.
Hyundai Glovis shares fell by the 15 percent daily limit in Seoul trading after Chung Mong-koo, 76, and his son, Chung Eui-sun, failed to sell 5 million shares in the conglomerate’s shipping and logistics arm. Hyundai Motor Group said in an email that some terms were not met.
A successful sale would have raised as much as $1.3 billion toward paying inheritance taxes and reducing their combined holdings from 43.39 percent to the 30 percent level required by new laws governing related-party deals.
The failed sale comes as the new regulations target what the government regards as unfair transactions among affiliates of conglomerates, specifically in cases where families hold stakes larger than 30 percent.
Hyundai Motor said that while it doesn’t plan to re-offer the Glovis shares, the group will adhere to fair-trade laws and reduce related-party business deals.
“The company may try to reduce transactions between affiliates to skirt new laws that may put the family in danger,” said Chae Yi-bai, an analyst at the Center for Good Corporate Governance in Seoul. “Regardless of what happened, the group will still try to lower the family’s holdings to 30 percent.”
Parliament revised fair-trade laws to allow the government to fine chaebol family members if affiliates in which they hold more than a 30 percent stake make a profit from transactions with other group companies.
The regulation follows an earlier ban on creation of new cross shareholdings.
Like other chaebol including Samsung Group and Hankook Tire, Hyundai is preparing for a generational power shift from the elder Chung to his 44-year-old son, currently Hyundai Motor’s vice chairman.
That wealth transfer is taking place amid tighter controls and growing activism against corporate practices perceived to harm minority shareholders, including the system of cross shareholdings that has allowed the owner families to control groups despite holding only small minority stakes.
Scions hoping to keep control of the groups also face high inheritance taxes. In the younger Chung’s case, selling all of his stakes in listed Hyundai affiliates may only just raise enough cash to inherit his father’s holdings, based on the companies’ closing share prices on Monday.
Glovis shares fell to 255,000 won. Hyundai Mobis jumped 11.6 percent, while Hyundai Motor rose 1.3 percent. The benchmark Kospi fell 0.2 percent.
Prior to today’s rout, Glovis shares had gained 26 percent in 2014, compared with a 29 percent drop at Hyundai Motor and 20 percent at Hyundai Mobis.

Bloomberg