Hyundai Goes Gangnam Style With Plan for $10 Billion HQ, Theme Park

Some analysts suggest Hyundai purposely has been slowing its pace because of encroaching recession in Korea and ongoing adverse effects on its exports from the strong Korean won.

Such thoughts were shattered by news Hyundai was the winner with a colossal 10.5 trillion won ($10.1 billion) bid for a choice parcel of land in the upscale Gangnam district of southern Seoul. There it plans to corral the headquarters of all 30 of its major constituent companies and, for good measure, build a huge automotive theme park to raise brand awareness.

At least one analyst blithely likens Hyundai Chairman Chung Mong-koo to the character in the lyrics of pop star Psy’s international hit song, “Gangnam Style,” in which he sings, “I’m a guy…who goes completely crazy when the right time comes, a guy who has bulging ideas rather than muscles.”

The bold Hyundai vision statement for the huge parcel is more than bullish in tone.

It seems a far cry from Chung’s position a little more than a year ago, when he said Hyundai had halted its facility-expansion programs and would focus only on quality and brand improvement.

“Hyundai Motor Group will construct an all-new global business center to leap into the future,” the vision statement says. “It will be the symbol of the group’s future that foresees the next 100 years.”

News that Hyundai would acquire the 19.6-acre (7.9-ha) parcel promptly, paying with cash, was accompanied by reports from China the automaker now plans to build not one, but two new plants there.

Neither Hyundai in Seoul nor Beijing Hyundai is commenting on the China capacity expansion reports. A Reuters report says Beijing Hyundai will move forward with its plan to build a new plant in Chongqing, because it needs to expand its presence and sales in Western China.

However, with China’s central government refusing to approve that expansion, Beijing Hyundai reportedly now plans to build a second plant in Hebei City in Huanghua, in Northeast China, which is the government’s preferred location.

When this new decision is formally presented, Beijing Hyundai expects the government will approve both plans. That could give Hyundai five plants in China, with capacity of 1.5 million vehicles annually.

A Hyundai source confirms the reported details surrounding the $10.1 billion business-center project in Gangnam, most released by the seller of the property, Korea Electric Power (KEPCO).

KEPCO says a consortium that includes Hyundai Motor, Kia Motors and parts and systems producer Hyundai Mobis will purchase the land, beating out the next-highest bidder, conglomerate Samsung, said to have bid about 4 trillion won ($3.9 billion).

Hyundai’s bid came in at a little more than three times the current estimated value of the property.

KEPCO must sell the property, which contains its national headquarters facilities, because it has been ordered to relocate to South Jeolla province under the government’s plan to spread its fixed assets equally between regions. KEPCO is one of many companies owned by the Korean government.

Under the bidding terms, the Hyundai consortium must fully pay for the acquisition within a 1-year period. KEPCO says the two sides will sign a binding contract Sept. 26.

The huge investment covers only the property-acquisition costs and not the needed investment for necessary buildings and infrastructure, which also will be colossal, according to analysts.

The expected construction work will be financed separately from the land-acquisition investment. Over the next decade, the 30 top affiliates in the Hyundai Group likely will be assessed a share of the development costs as the grandiose new business center is under construction, sources say.

Hyundai Group affiliates also will pay combined annual fees of some 240 billion won ($230.2 million) for use of the new facilities, thus sharing the cost of ongoing operations and upkeep. Presumably the tri-company consortium will be able to benefit from the annual depreciation writedown.

Hyundai sources note property values in the upscale Gangnam district have increased significantly, by an average 9%-10% annually over the past decade. The increase in value is expected to continue and perhaps accelerate with Hyundai setting foot there, so the investment eventually could be matched by a rise in property values.

Hyundai has said the complex will contain a huge headquarters office tower, a major hotel, at least one department store and an automotive theme park and museum.

The theme park would be on the order of the Volkswagen Autostadt in Wolfsburg, Germany, which analysts say has been significant in boosting brand value.

The Hyundai theme park would eclipse in size the similar just-opened BMW Driving Center on Yeongjong Island, where Incheon International Airport is located.

While Hyundai says its new center and automotive theme park will attract 100,000 visitors annually, the projection may be conservative.

BMW Korea announced its BMW Driving Center, which contains driving tracks and an automobile museum/showroom, is expected to draw 200,000 visitors each year.

While it may be just coincidence, public announcement of Hyundai Group’s winning bid for the property came on a day when the market value of stock for the three consortium partners took a sudden deep drop.

While KEPCO’s stock rose 5.8% by the end of the day, Hyundai Motor shares plunged 9.7%, falling below the 200,000-won-per-share level for the first time in more than a year.

Kia stock dipped 7.8% and Hyundai Mobis shares dropped 7.9%.

Some analysts believe investors may be concerned the consortium is paying too much for the property and that needed investments in R&D and other areas might be squeezed to pay for it.