Hyundai Motor Group Restarts Corporate Governance Restructuring... 3 Leading Scenarios

[Asia Economy Reporter Su-yeon Woo] The issue of restructuring the governance of Hyundai Motor Group has resurfaced sharply this month with the inauguration of Chairman Chung Eui-sun. As discussions on the amendment of the Fair Trade Act, which includes strengthening regulations on internal transactions, gain momentum mainly among the government and ruling party, the market environment is also becoming favorable, leading to speculation that Chairman Chung is accelerating the final succession process.

According to industry sources on the 22nd, Hyundai Motor Group is reportedly reviewing various plans to re-push the governance restructuring. There is even speculation that a restructuring plan, including details of share succession following Chairman Chung’s promotion within the group, could be announced as early as this year. On the 15th, Chairman Chung responded to reporters at his first official event since taking office that he is "considering" governance restructuring. This marks a noticeable change in atmosphere compared to before, when he avoided any mention related to governance.

Glovis Stock Price Gains Momentum... Environment Set for Relaunch of Restructuring

Recently, stock prices and market conditions have been moving in a direction favorable to the relaunch. Although no specific plan has been announced, there is unanimous agreement that the direction of Glovis, which has the highest major shareholder stake, is crucial. The restructuring is expected to proceed in a way that maximizes the value of the major shareholder’s Glovis shares and uses them to secure shares in the top-tier holding company. Therefore, the Glovis stock price must be supported for the relaunch to proceed.

The recent surge in Glovis stock price can be explained by its leadership in promising new businesses such as the used car business entry announcement, electric vehicle battery rental business, and hydrogen energy transportation business, with strong backing from the group. Glovis stock price, which soared to around 170,000 KRW at the time of the restructuring announcement in March 2018, now exceeds 200,000 KRW. Another factor accelerating the relaunch is the significantly reduced foreign ownership compared to back then, as Elliott Management, which led opposition to the previous restructuring plan, disposed of its Hyundai Motor and Hyundai Mobis shares last year.

Chung Euisun, Chairman of Hyundai Motor Group

Three Restructuring Scenarios, Likely to Supplement and Modify Existing Plans... Chung Eui-sun’s Choice

The financial investment sector has proposed various scenarios regarding Hyundai Motor Group’s governance restructuring. The most likely plan is to revise and supplement the restructuring plan withdrawn in 2018. The previous plan failed due to investor opposition, as the merger ratio between Mobis and Glovis was set unfavorably for Mobis shareholders. By supplementing this, it is expected that investors’ consent can be obtained by listing the spun-off Mobis entity and recognizing an objective merger ratio based on market prices.

However, since the merger after the listing of the spun-off entity cannot guarantee the major shareholder’s final shareholding ratio, it is uncertain whether the major shareholder will accept this to maintain control. Moreover, not only the merger ratio but also the legitimacy of the merger must be sufficiently convincing to investors for final approval.

Therefore, there is also speculation that Mobis will be spun off but no merger with Glovis will occur. While shareholders can reasonably agree to the spin-off of Mobis as part of core business restructuring, a merger with Glovis requires more stringent conditions. One proposed plan is to spin off Mobis to reduce the value of shares in the surviving Mobis (investment division), and increase control by exchanging the major shareholder’s Glovis shares and spun-off Mobis (business division) shares with the surviving Mobis shares held by Kia Motors.

The second scenario envisions Glovis, which holds the largest stake by the major shareholder, emerging as the holding company. Glovis would directly purchase Mobis shares held by Kia Motors and Hyundai Steel, thereby becoming the top holding company of the group. This has the advantage of being able to proceed with only board approval, speeding up the restructuring.

However, Glovis’s financial capacity is unclear, and there is the burden that Glovis could become the center of internal transaction controversies. Although Glovis is expanding new businesses such as the used car business and electric vehicle battery rental business, a significant portion of its revenue still comes from affiliated companies. Furthermore, if the strengthened Fair Trade Act regulating internal transactions passes the National Assembly, the controlling family would have to sell about 10% of their current 30% stake in Glovis.

The final scenario is to split Hyundai Motor Group’s major affiliates?Hyundai Motor, Kia Motors, Mobis?into investment and business companies and establish a 'holding company system' by grouping the investment companies. However, this involves many variables in the splitting and merging process, and under current law, converting to a holding company would force the sale of financial affiliates like Hyundai Card, making this scenario less likely.

Instead, there is also a proposal to split only Hyundai Motor and Mobis into investment and business companies and merge either the investment companies or the business companies. This would establish a 'major shareholder → merged investment company → merged business company' structure, allowing the major shareholder’s stake in the merged investment company to be increased to over 20%, which is advantageous.

This content was produced with the assistance of AI translation services.