Hyundai, Kia to Spend $616 Million to Buy Back Shares

Hyundai Motor Co. and Kia Motors Corp. will buy back a combined 670 billion won ($616 million) of stock after their purchase of a Seoul property for three times the assessed price spurred a sell-off.

Hyundai, South Korea’s largest automaker, will buy back 2.2 million common shares and 652,019 preferred shares, while affiliate Kia will buy back 4.05 million common shares, both at yesterday’s closing prices, according to separate regulatory filings by the companies today. The buybacks will be completed by Feb. 11 to “stabilize share prices and improve shareholder value,” the companies said.

The announcement comes almost two months after the automakers and Hyundai Mobis Co. won an auction for prime property in South Korea’s central Gangnam district, offering triple the assessed price to state-run Korea Electric Power Corp. Hyundai shares slumped 24 percent since the deal was announced on Sept. 18 through yesterday, compared with a loss of 5.1 percent for South Korea’s benchmark Kospi Index.

“Today’s announcement helps ease concerns that Hyundai may cut dividend payout and is meaningful in that the companies have taken an actual step to improve shareholder value,” said Heo Pil Seok, chief executive officer at Midas International Asset Management Ltd., which oversees $10 billion, including Hyundai shares. “It will definitely improve investor sentiment and bring up market expectation for an increase in dividend.”

Hyundai climbed 5.7 percent to 176,000 won at the close in Seoul trading today, while Kia rose 2 percent and the Kospi gained 0.2 percent.

Land Deal

Last month, Hyundai said on behalf of the land-deal consortium that the three companies, all part of billionaire Chairman Chung Mong Koo’s automotive group, won’t issue debt and will use cash to fund the 10.6 trillion won purchase.

This damped investor optimism that the companies may increase their dividend payouts. The government had announced plans in August to encourage businesses to increase wages and dividends by levying a 10 percent punitive tax on corporate cash hoards.

Both Hyundai’s Chief Financial Officer Lee Won Hee and Kia’s then-CFO and recently promoted co-Chief Executive Officer Park Han Woo said the companies are considering an interim dividend payout at their third-quarter earnings conference call last month to ease investor discontent. That wasn’t enough to bring share prices back to pre-land deal levels, and the three companies lost almost $16 billion in combined market value through yesterday.

Dividend Payout

Investors are still waiting for Hyundai to increase dividends, said Lee Jin Woo, a Seoul-based fund manager at KTB Asset Management Co., which oversees about $7.9 billion.

“Buying back shares is better than doing nothing,” Lee said by phone. “Still, a dividend payout is what investors are waiting for and what will really get overseas investors to change their bearish view on Hyundai.”

Hyundai Motor will pay 55 percent of the total for the land, followed by Mobis with 25 percent and Kia the rest. The site was put on the market in July by Korea Electric Power ahead of its relocation to the south of the country as part of a regional development plan by the government.

Hyundai Motor Group has said its plans for the site include a hotel, convention center and auto theme park. The group plans to move 30 of its affiliates to the new site, it said in a statement.

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