By Hyunjoo Jin and Liana B. Baker
SEOUL/NEW YORK (Reuters) - A unit of U.S. activist hedge fund Elliott Management revealed on Wednesday that it holds more than $1 billion worth of shares in key affiliates of South Korea's Hyundai Motor Group and called for more rapid reform of the auto giant's governance.
It is Elliott's latest challenge to South Korea's family-run conglomerates after it forced Samsung Electronics Co Ltd (KS:005930) to increase shareholder returns in 2017, and comes amid a government campaign to boost investors' power in a country where shareholder activism is rare.
Elliott Advisors called for a "more detailed roadmap" as to how Hyundai Motor Group will "improve corporate governance, optimize balance sheets, and enhance capital returns" at Hyundai Mobis (KS:012330), Hyundai Motor (KS:005380) and Kia Motors (KS:000270).
The fund did not provide a breakdown of its stakes in Hyundai's three affiliates but its over $1 billion worth of shares account for around 1.5 percent of the total market value of the three firms.
Hyundai Mobis shares jumped as much as 6.1 percent to their highest since Jan. 25 in the wake of the announcement. Hyundai Motor rose 4.9 percent, its highest in three weeks, while Kia Motors gained 3.8 percent in morning trade in Seoul, versus the broader market's (KS11) 0.13 percent fall. Hyundai Glovis (KS:086280) shares rose as much as 4.8 percent.
"I see Elliott's call as positive, as it should enhance shareholder value," said Kim Sung-soo, a fund manager at LS Asset Management.
"Elliott has declared war against Hyundai but it has not made detailed demands, so further discussions need to be seen."
Auto-to-steel giant Hyundai Motor Group announced a plan last week to streamline its complex ownership structure as it responds to calls from the government and investors for greater transparency and better governance at family-controlled conglomerates, or chaebols.
But worries that the plan would benefit the parent group’s controlling family ahead of investors have hit the share prices of group companies such as parts supplier Hyundai Mobis.
While Elliott said it was pleased that Hyundai Motor Group had taken a first step toward reform, it added in a statement that "more needs to be done to benefit the companies and stakeholders".
"Elliott looks forward to engaging with management and other stakeholders directly on these issues, and to offering recommendations regarding the proposed plan," the hedge fund said.
Hyundai Motor Group responded that it was "confident" its restructuring plan would enhance shareholder value, and promised to communicate with investors at home and abroad.
BATTLE WITH CHAEBOLS
Last year, South Korea's new antitrust chief told Reuters he had been in talks with Hyundai Motor Group about unwinding its circular shareholdings, which critics say give too much power to the controlling family at the expense of shareholders.
Under Hyundai's plan, Hyundai Mobis is to spin off its domestic module and after-service parts businesses and merge them with logistics affiliate Hyundai Glovis (KS:086280), which is personally backed by Hyundai's controlling Chung family.
But some investors complained that Mobis could be giving away the most profitable part of its business too cheaply.
The plan is yet to be approved by shareholders.
After the merger, Group Chairman Chung Mong-koo and his son Chung Eui-sun, who is vice-chairman, will buy stakes in Mobis held by other affiliates Kia Motors, Glovis and Hyundai Steel (KS:004020).
The group has not announced when the family members would buy the Mobis stakes.
Elliott's intervention is another headache for Hyundai, which is already struggling with slowing sales in China and the United States and Seoul's diplomatic row with Beijing last year.
Paul Singer's $33 billion firm Elliott Management is one of the few investors willing to take on South Korea's powerful chaebols.
In 2015 it narrowly lost its battle to block a merger of two Samsung Group affiliates that will allow the controlling Samsung family to consolidate their holdings ahead of a leadership transition.
In 2016, Elliott called on Samsung Electronics to introduce a transparent holding company structure and pay a special dividend, among other demands. Samsung rejected the call for a holding company, but announced plans to cancel its existing treasury shares worth over $35 billion by 2018.
Samsung Electronics Vice-Chairman Jay Y. Lee was later jailed for bribing a friend of former President Park Geun-hye in exchange for government support for a restructuring seen as advantageous to the controlling Lee family.
The South Korean public has become increasingly angry at bad behavior by chaebol family members in the wake of the corruption scandal involving Samsung which led to the impeachment of Park last year.
Past foreign attempts to take on chaebol families include Sovereign Asset Management's unsuccessful bid to unseat SK Group Chairman Chey Tae-won who was convicted of financial wrongdoing in 2003.
(This story has been refiled to fix dateline)
