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Hyundai shuns holding company structure

Innovative approach avoids possible legal, financial ramifications
Mar 30,2018
Hyundai Motor Group opted to use its resources to invest in manufacturing cars and developing future mobility instead of going through the costly process of shifting to a typical holdings company structure, according to the company Thursday.

Korea’s second-biggest conglomerate by market capitalization announced Wednesday it would resolve its complicated cross-shareholding structure, with Chairman Chung Mong-koo and Vice Chairman Chung Eui-sun taking control of Hyundai Mobis and divesting from other affiliates.

However, the company defied market expectations and did not shift to a full holdings company structure.

“The focal point was not about becoming a holding company or not, but it was about eliminating cross-shareholding and internal trading within affiliates,” a company official said Thursday.

“Shifting to a holding company incurs more costs than people think and involves a complicated legal process. Instead of going through that hassle, the company has come up with a more efficient and effective way to solve the problem,” the official added.

Hyundai Motor said that not wanting to sacrifice its capacity to manufacture and develop complete cars was one of the reasons why it opted to avoid a holding company structure.

In order to become a holding company, the group would likely have had to divide Hyundai Motor, Kia Motors and Hyundai Mobis into business and investment units to then merge three investment units to act as a holding company. Such a division would have jeopardized workflow efficiency.

“The company believes that when Hyundai Motor and Kia Motors have to invest in something, it has to be done promptly with each company playing a leading role. Maintaining such an environment is vital,” Hyundai Motor said in a release Thursday.

The company also felt that dividing the work force would have a negative effect on work efficiency.

Legal restrictions also would have caused problems.

According to Korea’s fair trade law, subsidiaries of a holding company cannot acquire other companies. That task can only be completed by the holding company.

Such restrictions would have limited funds and put a break on aggressive M&As, according to the company.

In fact, Hyundai Motor Group utilized funds from Hyundai Motor, Kia Motors and Hyundai Mobis to acquire Hyundai E&C back in 2011 because the acquisition price was too high.

“Aggressive M&As are a prerequisite in a fast-changing industry,” explained the company official.

It is also illegal for a non-financial holdings company to have a subsidiary that is a finance or insurance company. If the group had shifted to a holding company structure, Hyundai Capital would have suddenly become an illegal subsidiary.

Although Hyundai Mobis will play a vital role in managing the affiliates, its share price actually fell 2.97 percent to 254,000 won ($238.76) on Thursday. This is likely because Hyundai Mobis’ after service and module businesses will shift to Hyundai Glovis as part of the restructuring.

“The after-service business at Hyundai Mobis was a highly profitable segment but since it will completely shift into Hyundai Glovis, it may act negatively to Hyundai Mobis,” said Lee Jae-il, an analyst at Eugene Research.

Hyundai Glovis shares closed at 182,000 won Thursday, jumping up 4.9 percent.

“By absorbing Hyundai Mobis’ after-service department, Hyundai Glovis will be able to take on a car-sharing and car-hailing business by creating a synergy effect and completing its supply chain in the car market,” explained Ryu Jay, an analyst at Mirae Asset.


BY JIN EUN-SOO [jin.eunsoo@joongang.co.kr]