Hyundai Group chief calls on PE firm help to defend against Schindler

South Korea’s conglomerate Hyundai Group Chairwoman Hyun Jeong-eun is seeking money from a local private equity firm to defend the management rights of its core elevator unit from a potential hostile takeover from the Schindler Group, which won a legal battle against her.

Hyun selected H&Q Korea, a domestic PE firm, as the preferred bidder for a structured equity deal using shares in Hyundai Elevator Co., which acts as the group’s holding company, to raise about 300 billion won ($235 million), according to investment banking industry sources on Tuesday.

The PE firm will buy three forms of assets in the deal. Hyundai Network Co., wholly owned by Hyun and her children, is set to issue 180 billion won in convertible bonds and 80 billion won in exchangeable bonds that can be converted into Hyun’s shares in Hyundai Elevator.

H&Q plans to buy the existing stocks of the country’s top elevator maker held by the chairwoman for 40 billion won in addition to those bonds. The PE firm reportedly proposed a coupon rate of around 8% per annum for the convertible bonds and a nominal yield of 3% for the exchangeable bonds. It will use its own fund of 100 billion won and raise 200 billion won from pension funds for the deal.

Hyun owned 3.2 million Hyundai Elevator shares, or a 7.8% stake, as of end-March, according to the company’s filing to a local financial regulator. Hyun and friendly shareholders including her family and the largest shareowner Hyundai Network held 26.6%. Hyundai Elevator’s share closed at 42,500 won on the day.

The chairwoman plans to redeem loans from financial institutions, which were borrowed to spend on litigation compensation and deferred interest, with the proceeds.

Hyun is set to keep exercising her control over Hyundai Elevator after raising money from H&Q, although the PE firm is reportedly poised to secure the authority to participate in management.

The deal was known to have included a condition for H&Q to take over management rights if Hyun fails to repay those bonds within the maturity period.

DEFEATED BY SCHINDLER IN LEGAL BATTLE

She has been looking for such a deal with PE firms at home and abroad after losing a legal battle against Schindler, Hyundai Elevator’s second-largest shareholder with a 15.5% stake.

The Supreme Court of Korea in March upheld a lower court ruling in favor of the Switzerland-based elevator manufacturer, which ordered Hyun to pay up to 300 billion won including a principal of 170 billion won to Hyundai Elevator.

Hyun decided to hand over 86.3 billion won in her shares of Hyundai Movex Co., Hyundai Elevator’s affiliate, in April as a payment in substitution. She already paid 100 billion won in 2020 when an appeal court handed down the ruling while making a public deposit of 20 billion won.

The nine-year-long dispute started as Schindler filed a suit against Hyun for causing some 700 billion won in damages to Hyundai Elevator with unfair derivatives contracts.

After winning the legal battle, Schindler sought a court order to seize and sell Hyun’s assets, including her Hyundai Elevator stocks, for compensation. She may lose her control over Hyundai Elevator if Schindler dumps Hyun’s shares and increase its stake in the company, industry sources said.

Hyundai Elevator makes up more than 90% of the group's annual revenue. The elevator manufacturer is striving to revive the past glory of the conglomerate, which separated shipping giant HMM Co. and financial firm KB Securities Co., formerly known as Hyundai Securities, in the 2010s.

Write to Dong-Hun Lee and Jun-Ho Cha at leedh@hankyung.com
 
Jongwoo Cheon edited this article.