Thumbs down for Hyundai Motor

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Thumbs down for Hyundai Motor

An advisory group of the National Pension Service (NPS) objected to Hyundai Motor’s proposed restructuring on Friday, a serious obstacle to the automaker’s corporate governance overhaul that will be put to a vote on May 29.

According to industry sources, the Korea Corporate Governance Service (KCGS), an adviser to the NPS, is opposed to the spinoff and merger plan for Hyundai Mobis and Hyundai Glovis.

The NPS is the second-largest shareholder of Hyundai Mobis, holding 9.8 percent of the auto parts affiliate, and is expected to play a critical role in deciding the fate of the spinoff and merger plan.

Hyundai Mobis plans to spin off its after-sales service and module businesses and merge them with Hyundai Glovis as part of Hyundai Motor Group’s corporate governance overhaul.

“We are convinced about the objective of Hyundai Mobis’ spinoff,” said KCGS in an internal report. “But we are not convinced of the method - the spinoff. And from the perspective of the new Hyundai Mobis [the after-sales service and module businesses], we are not sure if the merger with Hyundai Glovis will trigger a clear synergy effect.”

The advisory group went on to say that even if the merger ratio - which some investors claim undervalues Hyundai Mobis - is reasonable, it was not sure whether the spinoff and merger would enhance the value of the company.

If the NPS accepts the KCGS opinion and votes against Hyundai Motor’s plan on May 29, the plan could be dead.

In order for Hyundai Motor’s plan to be approved, one-third of the shareholders with voting rights have to attend the shareholders’ meeting on May 29 and two-thirds of the attendees have to vote in favor of the plan. At the moment, some 30 percent of Hyundai Mobis shares will be voted in favor of the plan as they are owned by relatives of group chairman Chung Mong-koo or affiliates in the group. Some 48 percent of the shares are owned by foreign investors including activist American hedge fund Elliott Management, which opposes the plan. Institutional investors in Korea own 11 percent and the NPS 9.8 percent.

Industry analysts say it is likely the NPS will follow the KCGS opinion. It voted in favor of a merger of Samsung C&T and Cheil Industries in 2015 - which the KCGS recommended against - and ended up being embroiled in the impeachment of former President Park Geun-hye and the jailing of Samsung de facto leader Lee Jae-yong.

“The NPS would not want to take full responsibility for the issue after it went through such a hard time in the Samsung case,” said one industry insider who asked not to be named. “It is likely they will follow the advisory group’s opinion.”

Hyundai Motor’s plan is looking increasingly embattled. A series of major investment and advisory firms have expressed negative opinions about the proposal, including American proxy advisers Glass & Lewis Co. and Institutional Shareholder Service.

Hyundai Motor executives pleaded to shareholders to support their corporate governance overhaul.

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