SEOUL: Hyundai Motor Group will pay a record $10bn for the site of its new headquarters in Seoul’s high-end Gangnam district, out-bidding Samsung Electronics Co Ltd and sparking investor concerns that it is wasting cash on a trophy property.
The conglomerate smashed the previous record auction price for a single plot of land in South Korea with its 10.55 trillion won ($10.14bn) bid, more than triple the appraisal value.
It would be the highest price by far for a single piece of land in Asia since the global financial crisis, according to CBRE Research, topping the $3.6bn paid last year by Hong Kong’s Sun Hung Kai Properties for a site in a commercial district in Shanghai.
Investors and analysts expressed alarm at the price that Hyundai was willing to pay for a site at a time when it could be pouring money into higher dividends or more factories. At the site, it plans to build an auto theme park and a hotel as well as new offices. “The bid price is nonsense. I was stunned,” said Kim Sung-soo, a fund manager at LS Asset Management and an investor in all the three Hyundai companies in the bidding group.
“Even taking into account competition with Samsung, the bid price is excessive,” Kim said, adding that he expected it to cost another $6bn to develop the property.
Hyundai Motor Co shares fell 9 percent, their biggest drop in three years, after the bid was announced by the seller, state-run Korea Electric Power (KEPCO). Sister firm Kia Motors closed 7.8 percent lower and parts maker Hyundai Mobis Co, also in the bid group, declined 7.9 percent. Between them, the three lost nearly $8bn in market value yesterday. Although Hyundai Motor Group has plenty of cash, Hyundai Motor Co and Kia, which together rank fifth by global auto sales, have been posting slowing profits as a strong local currency saps overseas earnings.
“This deal is going to take a huge chunk out of Hyundai’s vault, and dipping their hands into a cash stash that could have otherwise been used for higher dividend payouts and R&D is going to aggravate many investors, especially foreigners,” said Ko Tae-bong, auto analyst at HI Investment & Securities.
The companies also need to fund new factory projects in Mexico and China, which are expected to go into production in 2016. KEPCO shares gained 5.8 percent after Hyundai won the auction by what a KEPCO official called “a wide margin”. The official did not disclose the size of Samsung’s bid and a Samsung Electronics spokeswoman declined to comment.
Hyundai Motor Group’s 10 listed companies, excluding financial firms, had 42.8 trillion won in cash and equivalents at the end of the first quarter. Reuters
