April 15 (Bloomberg) -- Midas International Asset Management Ltd. Chief Executive Officer Heo Pil Seok said the fund manager plans to sell its Mando Corp. holdings after the auto-parts maker said it will bail out a construction affiliate.
“We will sell off all of the company’s shares,” Heo said in reference to Midas Asset’s Mando holdings, in a telephone interview today. “This issue clearly invades shareholders’ profits.”
Midas Asset is the first institutional investor to publicly voice opposition to the auto-parts maker’s plans to rescue a fellow unit of Chairman Chung Mong Won’s Halla Group. Mando plunged by the 15 percent daily limit in Seoul trading today as concern intensified over Mando’s use of funds, with at least seven brokerages cutting their investment ratings on the company since the plan was disclosed last week, according to data compiled by Bloomberg.
Mando said April 12 that it and a wholly owned unit plan to invest 378.6 billion won ($339 million) -- that’s 76 percent more than Mando’s cash and near cash as of Dec. 31 -- buying new shares of Halla Engineering & Construction Corp. Both Mando and Halla Engineering are headed by Chairman Chung. Mando also counts Halla Engineering as its biggest shareholder.
“The investment amount is a big amount compared with Mando’s size, and also it’s questionable whether things will end at this,” Heo said. “Therefore, I think the right thing to do is empty out our holdings.”
Midas owns more than 20,000 Mando shares, according to data compiled by Bloomberg.
Mando, South Korea’s third-largest maker of auto parts, plunged 14,900 won to 84,600 won at the close on the Korea Exchange, its steepest drop since the stock’s 2010 initial public offering. Mando was the worst performer by percentage change on the MSCI Asia Pacific Index today.
South Korea’s National Pension Service, the country’s biggest investor with about $350 billion in assets as of January, will review the Mando case “in a direction that boosts shareholders’ value, and react accordingly,” it said in an e-mail.
The service, which declined to provide further details, is Mando’s third-largest shareholder with a stake of about 8.6 percent, according to data compiled by Bloomberg.
“Investors are up in arms and I expect the shares to continue struggling for some time,” Lee Sang Hyun, an analyst at NH Investment & Securities Co. in Seoul, said by phone today. “The investment has nothing to do with Mando’s main business of making auto parts and it also goes against the new government’s policy to ban cross shareholdings.”
Mando’s investment plan runs against President Park Geun Hye’s pledges to limit cross shareholdings among South Korean family-run industrial groups, known locally as the chaebol. Mando is 20 percent owned by Halla Engineering, whose biggest shareholder is Chung.