Chairman, Son Look to Shed Stock in Hyundai Affiliate

Securities analysts in Korea are racking their brains trying to determine why Hyundai Chairman Chung Mong-Koo and his son, Vice Chairman Chung Eui-Sun, are trying to unload a huge block of shares of Hyundai Glovis, the Hyundai Motor Group’s logistics and transportation arm.

On Jan. 12, the Chungs tried to sell 5 million shares of Glovis with an asking price of roughly $1.3 billion but found no takers. It would have reduced their combined stake in Glovis common stock from about 43.4% to a little less than 30%.

Some analysts suggest they are trying to get around a new securities regulation that levies fines on family members who own more than 30% of a company that books more than 12% of its sales, or tallies annual earnings of 20 billion won ($18.5 million), from deals with its affiliates.

Others think it is an attempt by the younger Chung to raise cash to acquire a bigger position in another Hyundai affiliate, and ease the transition should his father leave Hyundai Motor and the other affiliated companies in which he holds a strong ownership position, leaving the son in control. Analysts agree that regardless of his actual stock holdings, the elder Chung is firmly in command of all Hyundai Motor Group affiliates.

If the younger Chung were to receive any of his father’s holdings, he would require cash to pay sizeable succession duties.

Whatever the reason, or reasons, Hyundai Glovis has figured significantly in the fortunes of both Chungs during the past 13 years.

Hyundai Glovis first made headlines in 2006, five years after the father and son formed the company with an investment of about $5 million. Its mission of transporting Hyundai and Kia vehicles to markets worldwide, establishing warehousing and transportation hubs within the countries where they are sold, entering the used-car business, and other enterprises quickly made it highly profitable.

In its first year, Glovis earned $6.7 million on sales of $203 million. In 2005, it earned $82 million on sales of $1.6 billion.

The following year, somebody blew a whistle on Hyundai Glovis and prosecutors raided the company offices. They found a safe with some $7 million in cash, a slush fund allegedly used for bribes and to smooth out deals for Hyundai Motor and other affiliates.

The president of Mobis was arrested and sentenced to jail, but later was released to serve a suspended sentence, presumably for implicating Chung Mong-Koo and other Hyundai Motor officers in the alleged slush-fund plot. Subsequent examinations of Hyundai’s books turned up apparent misappropriations.

Prosecutors grilled both of the Chungs for hours but released Chung Eui-Sun, saying it would be “too tragic” to arrest both father and son. The elder Chung was arrested and spent two months in a solitary cell in the notorious Seoul detention center before being convicted and sentenced to three years in prison. He was released on bail so he could operate the Group’s companies pending appeal. An appellate court later changed his sentence to a 3-year suspension.

In 2007, Korea President Lee Myung-Bak, a one-time president of Hyundai Engineering and Construction, granted Chung a full pardon and expunged his record.

Today,  Chung Mong-Koo owns 4.3 million shares of Hyundai Glovis, or about 11.5% of the common stock, and Chung Eui-Sun has 12 million shares, a 31.9% stake.

Hyundai Motor owns 1.83 million shares, or 4.9%, and the Chung Mong-Koo Foundation holds 1.7 million shares, a stake of 4.5%.

The reason analysts are baffled by the effort by Chung Mong-Koo and his son to unload 5 million shares of Hyundai Glovis stock has to do with the ownership and control complexities of the more than 50 affiliated companies within Hyundai Motor Group.

Many analysts will say the network is not an attempt to be devious and opaque, but is the result of a combination of acquisitions and actions taken to raise cash, make investments and create synergies.

But none of them can figure out for certain why at this time the two Chungs are trying to unload 5 million shares of Hyundai Glovis to raise $1.3 billion from the public market.

The elder Chung does not need it personally. Korean securities regulations for the first time last year required major corporations to release the salary figures for their directors. Chung was paid $13 million in salary, bonuses or other compensation in 2013; $5.2 million from Hyundai Motor; and $3.9 million each from Hyundai Mobis and Hyundai Steel.

His stock holdings are listed at a little more than $7 billion.