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 Thursday's winning bid for the land sent shares in Hyundai Motor,
Kia Motors <000270.KS> and Hyundai Mobis <012330.KS> plunging,
wiping out $8 billion in shareholder value, and sparked howls of
protest from investors, rekindling worries about corporate
governance at South Korea's conglomerates, or chaebol.
While boards of the three firms discussed and approved bidding for
the plot in the capital's high-end Gangnam district to house a
headquarters complex, hotel and automotive theme park, the bid price
was not shared with directors as it was deemed to be confidential,
three of the directors said.
The Hyundai Motor and Kia Motors boards unanimously approved making
a bid for the KEPCO land, two directors said.
"The price was top secret, so it was not something we discussed at
the meeting," said one, declining to be identified given the
sensitivity of the matter. "The intangible benefits go beyond the
appraisal price of the land."
Another director at one of the companies said its board heard and
discussed information about the appraisal price of the KEPCO land
and the value of nearby buildings. "Hyundai has many grand ideas
around the KEPCO land," he said. "I think it's worth it."
Hyundai Motor Group, headed by 76-year-old Chung Mong-koo, declined
to comment on board level decision-making behind its bid, and also
said it had not yet decided how the purchase price would be divided
among the three companies.
"The one very core element was missing, then, during the process,"
said Park Yoo-kyung, a Hong Kong-based director specializing in
corporate governance at Netherlands-based APG Asset Management,
which manages $482 billion in pension assets and holds shares in the
three Hyundai firms in the bid group.
Noting that Hyundai's statement after the bid was announced on
Thursday did not mention shareholder benefits or value-creation,
Park said: "That's an amazing thing. It's unbelievably negative. We
are very angry."
In sealed bidding, Hyundai Motor Group won the auction by a "a wide
margin", said an official with the seller, state-run Korea Electric
Power (KEPCO) <015760.KS>. The other bidder, Samsung Electronics
<005930.KS>, has not said how much it bid, but media reports put it
in the $4-$5 billion range.
URGE TO SPLURGE
Hyundai Motor Group, the world's fifth-largest automaker, had long
made clear it coveted the 79,342 square meter site, the last big
piece of land available for development in the capital's prestigious
southern Gangnam district.
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Even before its bid, it had spoken of plans to build a landmark
complex on the plot, so it had been widely expected to offer a hefty
price, but its actual bid far surpassed expectations. Nomura
estimated the total investment associated with land, tax, and
building could reach 20 trillion won ($19.17 billion).
Hyundai, whose corporate forebears were instrumental in South
Korea's breakneck industrialization decades ago, invoked national
pride in its plans for the site.
"This (global business center) will raise the brand value of the
automobile industry and the country, and contribute to revitalizing
the national economy by actively attracting foreigners and
tourists," it said on Thursday.
UNCONVINCED
Kim Sang-jo, executive director of Solidarity for Economic Reform,
an advocacy organization for better corporate governance, said his
group would ask the companies for minutes of their board meetings to
try to determine whether there was adequate discussion.
"Hyundai made a nonsensical, reckless decision because they did not
take into account shareholders," Kim said.
South Korea implemented reforms in the aftermath of the Asian
financial crisis of 1997-98 to improve the performance of corporate
boards, including introducing outside directors. However, worries
about corporate governance in the big family-controlled groups that
dominate corporate Korea continue to weigh on market valuations.
Hyundai Motor group has plenty of cash, but many investors were
hoping instead for bigger dividend payouts, as well as investment in
production capacity and research and development in a competitive
market chasing better fuel economy and "greener" models.
A Hyundai Motor spokesman said in an email to Reuters on Friday:
"There are always meetings with investors, and we are ready to fully
answer questions from investors regarding this matter. We would like
to say that there has been a need to construct an integrated company
building for a long time."
(Editing by Tony Munroe and Ian Geoghegan)
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