Carlyle buys $510 mn stake in Hyundai Glovis

US private equity juggernaut The Carlyle Group Inc. has bought a 10% stake in Hyundai Glovis Co., worth approximately 611 billion won ($510 million). 

Hyundai Motor Group announced Wednesday that its Chairman Chung Euisun and his father, Honorary Chairman Chung Mong-koo, unloaded the shares through block trading.

According to a regulatory filing by Hyundai Glovis, Chung Euisun, its biggest shareholder, sold a 3.29% stake. The senior Chung, the third-largest shareholder, sold a 6.71% stake, the entirety of his holdings in Glovis.

Carlyle became the third-largest shareholder in Hyundai Glovis. Chairman Chung remains the largest shareholder with a 19.99% stake, followed by Den Norske Amerikalinje AS (under Norway shipping group Wilh. Wilhelmsen ASA) with an 11% stake and Hyundai Motor Company with a 4.88% stake. 

Hyundai Glovis is a logistics company engaged in marine transportation of finished vehicles and distribution of auto components. There are three main categories to the business: namely total logistics; distribution and sales; as well as marine transport. In the first three quarters of last year, the three categories made up 32.7%, 52.8%, and 14.5% of the company's revenue, respectively. 

THE 20% THRESHOLD

The divestment lowers Chung family's stake in the affiliate to below 20%.

The stake sale follows the Korean government’s recent announcement that it will strengthen its antitrust regulations on inter-affiliate trading by conglomerates. 

Previously, the fair trade act banned a conglomerate from providing favors to a listed affiliate of which the owner family holds a minimum 30% stake. Since Dec. 30 of last year, however, the threshold has been revised down to a stake of 20% or more.

Back in 2015, the two Chungs sold their Hyundai Glovis shares in accordance with Seoul's strengthened rules on inter-affiliate trade. Their combined stake in Hyundai Glovis stood at 43.4% in late 2014. While their first attempt to sell a 13.4% stake in a block trade in Jan. 2015 was aborted, their second try the following month reduced their combined ownership to below 30%. 

 

SHAREHOLDERS EMBRACE THE SALE

Hyundai Glovis shares surged 6.36% on Thursday to finish the day’s trading at 184,000 won per share. The stake reshuffle gave investors assurance that the company could consider a governance reform; and also relieved overhang concerns.

Last year, its share price plunged to as low as 144,000 won in November after hitting its peak of 235,000 in January. 

Shares of Hyundai Mobis, a car parts company, climbed 4.86% to close Thursday's trading at 269,500 per share. The company has a 21.4% stake in Hyundai Motor Co. While the parts manufacturer is integral to the governance of Hyundai Motor Group, Chairman Chung has a mere 0.3% stake in it. 

Investors are betting that Hyundai Motor Group’s owner family could use the cash from the Glovis stock sales in one, or perhaps both, of these two ways: First, to purchase additional Mobis shares; and second, to pay for the taxes related to the transfer of Mobis shares owned by Honorary Chairman Chung to his son.

Chairman Chung and his father will receive 201 billion won and 410 billion won, respectively, from the Glovis unloading. 

The Hyundai affiliate's market capitalization stands at 6.90 trillion won as of Thursday’s close. Sales in the first three quarters of 2021 stood at 15.94 trillion won with operating profit of 801.1 billion won.

LONG TIME COMING

Experts say the market also took to the fact that the buyer is Carlyle. Through a shareholders’ agreement, the private equity firm has the right to appoint a member of the board of directors. The minority shareholder also boasts tag-along rights, meaning that if Chung unloads his shares, Carlyle has the right to join.

Kim Jinwoo, an analyst with Korea Investment & Securities Co. said, “Carlyle becoming the third-largest shareholder of Glovis signals more than the company’s role as a simple financial investor.” Kim expects the US company to also serve as a strategic investor by participating in management vis-a-vis the board of directors -- and eventually raise the corporate value of Glovis.

Discussions on Carlyle’s latest investment date back a few years. Back in May 2019, Chung was invited to join a fireside chat with then co-CEO of The Carlyle Group Kewsong Lee. The two have stayed in touch ever since. 

An industry insider said the Washington, D.C.-based private equity firm believes Hyundai Glovis has the potential for long-term growth in the logistics and marine transportation sectors in the post-pandemic environment. 

A Carlyle employee explained that Hyundai Glovis is expanding its foothold in businesses with high potential for growth -- such as hydrogen logistics, electric vehicle value chain solutions, and smart logistics. The employee added the private equity firm’s global network will add to Hyundai Glovis’ competitive edge.

(Updated with details on the negotiation history and stock prices on Jan. 6)

Write to Si-eun Park, Chae-yeon Kim, Jae-yeon Ko at seeker@hankyung.com
Jee Abbey Lee edited this article.