Frustrated by the depreciation in stock value and slow improvements in the family-run governance, U.S. activist hedge fund Elliott Management put forward fresh remedial demands to Hyundai Motor Group, asking the top Korean automaking conglomerate to use its excess capital to bolster shareholders’ value and rationalize operations through streamlining in non-core assets.

In an open letter published on Tuesday, Elliott claimed Hyundai Motor was “overcapitalized” by excess cash of 8 trillion won ($7.05 billion) to 10 trillion won and its parts affiliate Hyundai Mobis by 4 to 6 trillion won, citing an independent finding by Conway MacKenzie, a global automotive consulting firm.

The history of questionable cash flow has resulted in buildup of non-operating assets, including the expensive idle property lot in southern Seoul where the group hopes to build the tallest headquarters building, even as its R&D and capital investment remain below the industry average and Hyundai Motor’s stock has underperformed global peers by 60 percent over the last five years, it claimed.

Elliott went on to advise that the group should come up with a “more comprehensive restructuring plan that addresses the capital and governance issues that are responsible for Hyundai Motor Group shares’ chronic underperformance,” demanding new independent directors to the respective boards of the affiliates.

The activist hedge fund noted that shares of Hyundai Motor and Hyundai Mobis underperformed the Korean main stock index Kospi by losing 16 percent and 11 percent year to date, respectively, which was not a new trend. Such underperformance has hurt their shareholders for more than five years, it added.

On Wednesday, shares of Hyundai Motor fell 0.98 percent to close at 101,500 won while those of Kia Motors rose 2.3 percent to 28,950 won. Hyundai Mobis gained 1.88 percent to finish the day at 190,000 won.

As part of its friendly gestures to shareholders, Elliott called on Hyundai to return the excess cash to its shareholders, preferably by share buybacks considering “the deep valuation discounts.”

It also criticized the company’s delayed action in addressing Hyundai Motor companies’ valuation discounts and improving corporate governance structure after it scrapped its original restructuring plan in May.

Hyundai shelved its major overhaul plan in May to spin off Hyundai Mobis’ module and after-sales service business and merge them with Hyundai Glovis in the face of an opposition rally spearheaded by Elliott. It claimed the merger ratio between the two firms undervalued Mobis shares and hurt shareholders. The decision posed a major setback for Korea’s second-largest conglomerate in its efforts to ensure a smooth transfer of power from the 80-year-old father to his son, Vice Chairman Chung Eui-sun.

“In fact, nearly half a year has passed since the withdrawal of the original plan without any genuine engagement from HMG,” said Elliott Management in the open letter. “We believe it is imperative for the respective boards of HMG to take bold and decisive action to remedy HMG’s underperformance.”

The latest proposal of the U.S. investor came after announcement of disappointing earnings of Hyundai Motor and Kia Motors for the third quarter ended September amid faltering sales at home and abroad. Operating profit of Hyundai Motor plunged 70 percent on quarter and 76 percent on year to 288.9 billion won in the third quarter and that of its sibling Kia Motors also plummeted 66.7 percent on quarter to 117.3 billion won.

By Moon Il-ho and Choi Mira

[ⓒ Pulse by Maeil Business Newspaper & mk.co.kr, All rights reserved]