Hyundai Motor's record $10 billion bid for trophy property alarms investors

Thu Sep 18, 2014 5:33am EDT
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By Joyce Lee and Hyunjoo Jin

SEOUL (Reuters) - Hyundai Motor Group will pay a record $10 billion for the site of its new headquarters in Seoul's high-end Gangnam district, out-bidding Samsung Electronics Co Ltd (005930.KS: Quote) 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 ($10.14 billion) 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 $3.6 billion paid last year by Hong Kong's Sun Hung Kai Properties 0016.HK 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 $6 billion to develop the property.

Hyundai Motor Co (005380.KS: Quote) shares fell 9 percent, their biggest drop in three years, after the bid was announced by the seller, state-run Korea Electric Power (KEPCO) (015760.KS: Quote). Sister firm Kia Motors (000270.KS: Quote) closed 7.8 percent lower and parts maker Hyundai Mobis Co (012330.KS: Quote), also in the bid group, declined 7.9 percent. Between them, the three lost nearly $8 billion in market value on Thursday.

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.   Continued...

A visitor walks past a Hyundai Motor logo at a Hyundai dealership in Seoul April 25, 2013. REUTERS/Kim Hong-Ji