Hyundai Motor faces govt calls to address "big governance risk"

Shinil Electronics Co

20/08/2017 23:00

By Soyoung Kim and Hyunjoo Jin 
    SEOUL, Aug 21 (Reuters) - South Korea's new antitrust chief 
said he has been in talks with the autos-to-steel conglomerate 
Hyundai about overhauling its complex ownership structure, which 
critics say gives too much power to its controlling family at 
the expense of shareholders. 
    Kim Sang-jo, appointed to head the Korea Fair Trade 
Commission by President Moon Jae-in, told Reuters that Hyundai's 
web of cross shareholdings among its group affiliates has 
resulted in a "big governance risk" for South Korea's 
second-largest conglomerate, which is run by its 79-year-old 
chief, Chung Mong-koo. 
    "Many people, including me, are telling Hyundai that they 
shouldn't waste more time before dissolving cross shareholding," 
said Kim, who has been nicknamed "chaebol sniper" for his 
shareholder activist campaigns targeting South Korea's powerful 
family-run conglomerates. "I'm in ongoing conversations with 
Hyundai." 
    In his first interview with foreign media since taking 
office in June, Kim also said South Korea's antitrust watchdog 
is looking into competition issues regarding Google's Android 
mobile operating system, and has had conversations with the 
European Commission. 
    The European Commission last year charged Alphabet's 
 GOOGL.O . Google for using its dominant Android system to shut 
out rivals, and is weighing a record fine that could come by the 
end of the year, Reuters reported in July.  urn:newsml:reuters.com:*:nL8N1JW3X4 
    In South Korea, the Android operating system has a 74 
percent market share, and industry officials have questioned 
whether Google used its mobile dominance to prevent South Korean 
companies such as Samsung Electronics  005930.KS  from 
developing their own operating systems. 
    South Korean regulators, which in December fined Qualcomm 
Inc  QCOM.O  1.03 trillion won ($854 million) for what it called 
unfair business practices in patent licensing and modem chip 
sales, is also cooperating with its European counterpart on its 
own investigation into Qualcomm over related issues, Kim said. 
    Hyundai did not have immediate comment outside business 
hours on Sunday.  
     
    LAST MAN STANDING 
    Kim is the architect of chaebol reform pledges made by Moon, 
who was elected in a snap election in May to replace Park 
Geun-hye, impeached over a corruption scandal that exposed the 
cosy ties between government and chaebol such as Samsung Group. 
    At the heart of the governance conundrum are the 
interlocking shareholdings among group companies held by their 
founding families, which mean that if one affiliate goes 
insolvent, another affiliate will often be forced to come to the 
rescue. 
    It has been cited as a major factor behind the so-called 
"Korea Discount" - meaning their shares are typically 
undervalued in comparison to global peers. 
    In Hyundai's case, its chairman, Chung, controls the 
sprawling conglomerate with only small stakes in key affiliates 
including the automaker Hyundai Motor  005380.KS  and parts 
supplier Hyundai Mobis  012330.KS . 
    Kim said that Hyundai has stayed put even as many of South 
Korea's top conglomerates have moved to unwind cross 
shareholdings in recent years. 
    "I can tell you clearly that Hyundai recognizes it can't 
live with its current circular shareholding structure forever," 
he said. "It won't be done overnight, but the company is 
currently trying to find solutions." 
    He added: "Hyundai would be stupid if it didn't know the 
expectations of the market and the government." 
    The chaebols, which have long dominated Asia's 
fourth-largest economy, have also come under scrutiny over 
intra-group business deals that favor affiliates owned by family 
members at the expense of third-party competitors. 
    Kim said his agency had recently identified "several" 
chaebol group companies for abusing intragroup deals, and 
planned to launch formal investigations into some of them. 
    Hyundai Glovis  086280.KS , a logistics affiliate of Hyundai 
Motor, is one of a handful of companies found to have frequently 
used intra-group transactions, Kim said, declining to provide 
other names. 
     
    TROUBLES AT SAMSUNG 
    Kim recently testified as an expert witness for prosecutors 
in their bribery case against the Samsung Group leader Jay Y. 
Lee, who has been jailed since February on charges that he 
bribed Park, the former president. 
    Lee, who faces a court ruling on Friday, denied any 
wrongdoing as prosecutors sought a 12-year jail term this month 
on charges that include embezzlement and perjury.  urn:newsml:reuters.com:*:nL4N1KS06X 
    Kim expects Lee's troubles will paralyse group-wide 
decision-making and create "serious problems" for ailing 
affiliates, such as the struggling shipbuilder Samsung Heavy 
 010140.KS , although the impact may be limited on crown jewel 
Samsung Electronics  005930.KS .  
    "The verdict will have significant implications for 
Samsung's future. The biggest risk will be to the 
underperforming units that need group-wide support," he said. 
    Samsung declined to comment. The European Commission, Google 
and Qualcomm could not be immediately reached for comment. 
    Kim said he would focus on stricter enforcement of existing 
laws, such as using his agency's investigation powers, rather 
than pursuing drastic legislative changes that could fail in 
parliament where Moon's ruling party does not have the majority. 
    "President Moon is taking a lesson out of the failure of 
chaebol reforms under the former liberal administration," Kim 
said, referring to the unsuccessful reform efforts under the 
administration of Roh Moo-hyun, who served as president between 
2003 and 2008. 
($1 = 1,138.7700 won) 
 
 (Additional reporting by Choonsik Yoo and Yuna Park; Editing by 
Philip McClellan) 
 ((hyunjoo.jin@thomsonreuters.com; 82-2-3704-5685; Reuters 
Messaging: hyunjoo.jin.thomsonreuters.com@reuters.net)) 
 
Keywords: SOUTHKOREA ANTITRUST/