The recent stake sale by Hyundai Motor Group Chairman Chung Mong-koo and his son in Hyundai Glovis Co. is "credit positive" as it reduces the risks from upcoming toughened government penalties on intra-group transactions, a main revenue source for the logistics unit, a global credit appraiser said Monday.
On Friday, Hyundai Motor Group said that its chairman and his son, Eui-sun, sold about 5 million shares in Hyundai Glovis for an estimated 1.1 trillion won ($1 billion). The sale brought down the Chung family's shareholding in the company to 29.99 percent.
There had been suspicions that the sale might be aimed at raising money Eui-sun needs to buy shares of Hyundai Mobis Co., the de facto holding company of the automaking group, as a starting step to taking over its managerial power from his father.
Market analysts are placing more weight now on the theory that the Chung family sold their stakes in order to meet toughened government requirements on intra-group transactions, intended to prevent owners from inappropriately benefiting from business deals among group affiliates.
Hyundai Glovis is in effect an exclusive logistics service provider for Hyundai Motor Group, which owns Hyundai Motor Co. and Kia Motors Corp., the country's No. 1 and No. 2 carmakers.
Shares of Hyundai Glovis jumped 5.91 percent Friday following the stake sale. Hyundai Mobis shares plunged 4.34 percent.
"The sale by Hyundai Glovis' major shareholders of part of their ownership stake in the company reduces regulatory risks arising from Hyundai Glovis' transactions with affiliate companies," Moody's said in an emailed press release.
"The lower shareholding means that the regulation to be implemented in mid-February 2015 under the Fair Trade Law, which will impose stricter rules on transactions between shareholder owned companies and other group companies, will not apply to Hyundai Glovis, given that the Chung family now holds a combined ownership stake below the regulatory threshold of 30 percent," it added.
The Fair Trade Commission, the country's corporate watchdog, will enforce tougher rules on intra-group transactions for a company in which the owner's family has more than 30 percent of shareholdings. The rules to be applied to large conglomerates, including Hyundai Motor Group, are expected go into effect on Feb.14.
"Moody's believes that the lower ownership share by the Chung family will not affect the likelihood of group companies providing support to Hyundai Glovis in case of some need, given that Moody's expects Hyundai Glovis' strategic importance to group companies to remain intact at least over the next two-three years," the ratings agency said.
It also noted that Hyundai Glovis' rating continues to benefit from its high operational stability, large demand from group companies, and improved creditability of Hyundai Motor and Kia Motors that could provide financial support to Hyundai Glovis. (Yonhap)