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Hyundai Motor resolves circular shareholding by selling Hyundai Steel shares

Hyundai Motor resolves circular shareholding by selling Hyundai Steel shares

Posted February. 06, 2016 07:18,   

Updated February. 06, 2016 07:26

한국어

Hyundai Motor Group has decided to sell 8.8 million Hyundai Steel shares (6.61 percent stake), which the former came to own when Hyundai Steel was merged with Hyundai Hysco in July last year, to NH Investment Securities. Hyundai Motor Group is to sell off the stakes because the Fair Trade Commission late last year ordered the conglomerate to sell a certain number of shares in Hyundai Steel, as the chain of the company’s circular shareholding strengthened in the course of the merger.

Hyundai Steel announced in a regulatory filing on Friday that Hyundai Motor sold 5.74 million Hyundai Steel shares, while Kia Motors sold 3.06 million shares the steelmaker to NH Investment Securities. The proceeds from the sales amounts to 443.9 billion won (371 million U.S. dollars) based on 50,400 won (42 dollars), the price of Hyundai Steel share at Friday’s market close. Through the sell-off, Hyundai Motor is set to reduce its stake in Hyundai Steel from 11.2 percent to 6.9 percent, while Kia is to cut from 19.6 percent to 17.3 percent, which enables the two motor companies to resolve the issue of their circular shareholdings that result from last year’s merger.

The transactions have been made through Total Return Swap or TRS, a financial derivative product. In TRS, the buyer (NH Investment Securities) hands over all rights incurring from the asset in question including voting right and dividend right for the shares concerned, and the parties in the contract settle gains and losses arising from changes of share prices later on. The buyer will receive a fixed amount of interest from the seller (Hyundai Motor Group) in return for the deal.

“We sold the shares in question following the Fair Trade Commission’s judgement that the stakes from Hyundai Steel’s additional investment is subject to obligatory disposure,” a Hyundai Motor Group source said. “We opted for the TRS method in lieu of a bloc deal (massive afterhours trading) to minimize impact on the market, which could occur when a large volume of shares are put on sale on the market en masse in a short time, and to ensure the interest of the current Hyundai Steel shareholders.”

The Fair Trade Act allows pre-existing circular shareholdings by a conglomerate with a total asset over 5 trillion won (4.17 billion dollars), which is subject to cross-shareholding restrictions, but does not allow newly created extra cross-shareholdings. Hyundai Motor and Kia Motors should have addressed the circular shareholding issue by the end of last year. However, Hyundai Motor Group requested a grace period, because the fair trade watchdog informed the conglomerate of the obligation only five days prior to the suggested deadline.

The Fair Trade Commission said it would push ahead with the process to discipline Hyundai Motor Group for failing to resolve circular shareholding within the deadline in time. “The Fair Trade Commission will make final decision on whether to levy fines, place an order to correct the problem, or only issue a warning,” a commission source said.



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