×

FACTBOX-What you need to know about Hyundai's ownership structure

SEOUL, Aug 22 (Reuters) - South Korea's new antitrust chief said he had been in talks with the autos-to-steel conglomerate Hyundai Motor Group about overhauling its complex ownership structure, helping lift shares of major companies on Monday.

Following are some details of Hyundai Motor Group's ownership structure:

* What is a cross shareholding?

Under cross shareholding, various affiliates own stakes in one another, allowing family members to control the entire conglomerate with small stakes.

The Korea Fair Trade Commission says that cross shareholding "distorts" ownership structures and enables family members to take advantage of the structure to support struggling affiliates.

Cross shareholdings at the country's family-owned conglomerates, known as chaebols, have been cited as one of the key reasons why South Korean companies are trading at discounts to global peers.

* Why Hyundai Motor Group? How does cross shareholding at Hyundai work?

Kim told Reuters that South Korean companies had made progress in unwinding cross shareholdings over the past several years. He said that there are eight major conglomerates which have cross shareholdings, down from 15 in 2012.

However, he singled out Hyundai Motor Group, South Korea's No.2 conglomerate with 53 units, as the only company where cross shareholding plays a key role in family control and succession.

Chairman Chung Mong-koo holds a 6.96 percent in the parts affiliate Hyundai Mobis, which owns 20.78 percent of Hyundai Motor. The South Korea's top automaker then controls 33.88 percent of the second-ranked Kia Motors, which in turn owns 16.88 percent of Hyundai Mobis.

* Why change a decades-old structure now?

President Moon Jae-in took office in May, in the wake of a graft scandal that led to the ouster of his predecessor, Park Geun-hye, as well as the arrest of the chief of Samsung Group , Jay Y. Lee.

Moon pledged to improve corporate governance and curb the power of the chaebols that dominate Asia's fourth-biggest economy. He appointed Kim, nicknamed the "chaebol sniper" for his shareholder activist campaigns of the past two decades, to head the country's anttirust watchdog.

With Chung, the chairman, aging and his only son, Chung Eui-sun, lacking meaningful stakes in key affiliates, Hyundai is widely expected to go through restructuring to simplify its ownership structure and pave the way for succession.

The junior Chung does not have a stake in Hyundai Mobis, and holds a 2.28 percent stake in Hyundai Motor and 1.74 percent of Kia Motors.

The younger Chung, who holds stakes in non-major affiliates like Hyundai Glovis and non-listed Hyundai Engineering, could use his stakes in those affiliates to acquire stakes in major units including Hyundai Mobis, analysts say.

*What are possible scenarios?

The simplest way to break the key cross shareholding chain would be for the Chung family to buy Kia Motor's 16.88 percent stake in Hyundai Mobis, which was valued at 4.04 trillion won ($3.56 billion) as of Friday's closing price, analysts say.

A less expensive option would be to introduce a simpler, vertical holding company structure, under which there is one company at the top of the ownership chain.

Cross shareholding among affiliates is banned under the holding company structure, so the chain of ownership from top to bottom is greatly streamlined.

Analysts say the most likely scenario for the creation of a holding company is to split Hyundai Motor, Kia Motors and Hyundai Mobis into holding and operating entities and then have the holding entities merged into one.

The transition to a holding company typically involves families effectively selling down their stakes in individual operating companies in return for a greater share of the final holding company at the top. That allows controlling families to lock in even tighter control.

In May, Hyundai Motor Group denied a media report that it is working to convert to the holding company structure.

* What are the hurdles?

Daeshin Economic Research Institute said in a report last year that it would cost Hyundai Motor Group between 1.5 trillion won to 6 trillion won to break all of the four cross-shareholding chains at Hyundai Motor Group.

With no legislation in sight to ban cross shareholding, it remains to be seen whether Chung, who shows no sign of transferring power to his son, will move quickly to overhaul the empire. ($1 = 1,134.0100 won) (Reporting by Hyunjoo Jin and Haejin Choi; Editing by Philip McClellan)