Carlyle visits Hyundai Glovis seeking measures to boost value

The Carlyle Group, a US private equity giant, visited South Korea’s Hyundai Glovis Co. last week to discuss steps to boost the value of the Hyundai Motor Group’s logistics arm.

Carlyle bought a 10% stake in Hyundai Glovis from Hyundai Motor Chairman Chung Euisun, as well as his father and Honorary Chairman Chung Mong-koo for about 611 billion won ($490 million) in January, becoming the third-largest shareholder of the unit.

Carlyle’s Hyundai Glovis investment team last week visited South Korea and met with senior executives of Hyundai Motor to seek measures to boost the company’s value, said investment banking sources. They reportedly discussed future strategies for Hyundai Glovis and visited its main business sites, according to the sources.

“Carlyle, which has a 10% stake in Hyundai Glovis, is different from other shareholders,” said an industry source. “It aims to lift Hyundai Glovis’ value and play a major role in the group’s restructuring of its corporate governance.”

The PE behemoth’s investment was considered a deal that aligns its interests with those of Chairman Chung. He holds a 19.99% stake in Hyundai Glovis, the largest among the group affiliates. The stake is the most important financial source for Chung’s plan for corporate governance reform. Hyundai Glovis’ enterprise value must rise to help him maximize his stake in auto parts supplier Hyundai Mobis Co., which will likely be at the center of the group’s efforts to streamline its cross-shareholding structure.

ROBOTICS

Hyundai Motor and Carlyle reportedly discussed measures to foster new businesses, especially in the robotics sector. Hyundai Motor, which acquired Boston Dynamics Inc., plans to use robots for the automation of Hyundai Glovis’ logistics business.

Hyundai Glovis has recently entered the liquefied natural gas shipping business while targeting the hydrogen market.

Carlyle plans to strengthen investor relations activities for the company, saying it has been undervalued as it was widely known as an affiliate that ships cars produced only by Hyundai Motor Co. and Kia Corp. – the group’s two automakers.

The company’s retail business such as used car sales accounted for 52% of the total revenue and the logistics unit made up 33%. Its overseas vehicle unit shipments generated only 15% of its total sales.

Carlyle sees the potential for a further rise in Hyundai Glovis’ share price. It rose to as high as 199,000 won earlier this month, the highest since July of last year.


RESTRUCTURING

Hyundai Motor is expected to resume its attempt to reform its complex ownership structure after raising the enterprise value of Hyundai Glovis.

“The group is likely to seek a chance to reorganize its ownership structure in the second half,” said an industrial source. Carlyle is also predicted to look for additional investment opportunities in the group during the restructuring.

Hyundai Motor Group is the only major South Korean conglomerate that has yet to streamline its circular shareholdings: Hyundai Mobis controls Hyundai Motor, the top shareholder of Kia, which is then the largest shareholder of Hyundai Mobis. The chairman and his father hold a single-digit stake in each of the companies.

In 2018, the group had sought to revamp its governance structure including a plan to spin off Hyundai Mobis’ module and warranty businesses and combine them with Hyundai Glovis. The group had also aimed to sell Hyundai Mobis’ stakes held by affiliates such as Kia and Hyundai Glovis to the chairman and his father, streamlining the ownership structure: the top shareholders control Hyundai Mobis, the largest shareholder of Hyundai Motor, which is then the largest shareholder of Kia.

But the group could not go through with this due to strong opposition from investors, especially US activist hedge fund Elliott Management. They protested the ratio of the spin-off and merger between Hyundai Mobis and Hyundai Glovis at 0.61 to 1, saying the calculation underestimated the value of Hyundai Mobis’ warranty business.

The group is likely to adjust the governance reform plan in 2018, by spinning off and listing the warranty unit before merging it with Hyundai Glovis. Chung is expected to convert his stake in the merged entity into a stake in Hyundai Mobis to control the group.


Write to Il-Gue Kim and Chae-Yeon Kim at black0419@hankyung.com
Jongwoo Cheon edited this article.