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* Elliott proposes over $6 bln dividend, board seats
* "The status quo is not acceptable" - Elliott
* Shareholders to vote on proposals on Friday (Adds Elliott's letter to shareholders in par 8)
SEOUL, March 21 (Reuters) - The showdown between U.S. activist hedge fund Elliott Management and Hyundai Motor Group is set to come to a head on Friday when shareholders gather to vote on the fund's demands for a hefty special dividend and a board shake-up.
Elliott's challenge to South Korea's second-biggest family-run conglomerate is the latest example of shareholder activism in Asia's fourth-biggest economy, long dominated by powerful cliques that took minority investors for granted.
The activist fund founded by billionaire Paul Singer tasted success last year when it and other investors opposed Hyundai's ownership restructuring plan on the basis that it would favor family members rather than minority shareholders.
While it looks likely to fail on most counts on Friday, even if it manages to gain a single seat at Hyundai it would be a major victory for shareholder empowerment in the country.
Elliott is trying to rally shareholder support for dividend payouts from Hyundai Motor and Hyundai Mobis for 2018 worth a combined 7 trillion won ($6.2 billion), saying the group should dispose of its excess capital.
That is more than six times higher than the $1 billion in payouts offered by the Hyundai affiliates, which say Elliott's proposals would hamper future investments and acquisitions.
Elliott has also demanded a total of five board nominees at Hyundai Motor and Hyundai Mobis to address "governance shortcomings."
"We urge all shareholders to send an unambiguous message to the group in support of good governance and accountability, and to state unequivocally: The status quo is not acceptable change must come to HMG," Elliott said in the letter to shareholders on Thursday.
The campaign received a potentially fatal blow last week when South Korea's National Pension Service, the second-biggest shareholder in the two firms, said Elliott's demands were "excessive."
"I cannot help but think that Elliott is trying to make quick bucks and leave rather than enhancing long-term shareholder value," Kim Woo-chang, one of the members of the NPS panel which made the decision to vote against the proposals, told Reuters.
"Elliott's strategy has failed. It was short-sighted."
The NPS holds stakes of 8.7 percent and 9.45 percent in Hyundai Motor and Hyundai Mobis, respectively. About 30 percent of the two firms are owned by Hyundai affiliates and family members. Resolutions require approval from a majority of the votes of shareholders present at the meetings.
As of November, Elliott held more than 2.5 percent of common stock in Hyundai Mobis, 3 percent in Hyundai Motor and 2.1 percent in affiliate Kia Motors.
BENEFIT OF THE DOUBT
Questions about Hyundai Motor Group grew in 2014 when it paid $10 billion to buy land for a new headquarters in Seoul, three times the appraised value.
Some investors remain deeply troubled by that decision and want to see change at the conglomerate, even if they are not ready to support Elliott's proposals.
"It is not that Elliott's demand is nonsense. Hyundai has accumulated cash, and it has a poor track record of using cash," said Park Yoo-kyung, a Hong Kong-based director of Dutch pension fund APG Asset Management, which holds shares in Hyundai Motor and Hyundai Mobis.
"But we decided to give (the newly created board) the benefit of the doubt," Park told Reuters.
Leading proxy advisor ISS has recommended investors vote for Elliott's proposal to expand the board to 11 directors from nine at Hyundai Mobis to make room for director nominees from both the activist fund and management.
Seven out of nine funds which disclosed their proxy votes ahead of the meetings said they would back Elliott's proposals for board changes at Hyundai Mobis, according to the website of Korea Corporate Governance Service.
For Hyundai Motor, five out of six funds said they would vote against Elliott's three director nominees, who will compete with Hyundai's nominees to win board seats.
Once this battle is over Hyundai still faces the bigger challenge of revamping the group's ownership structure, a process which is attracting close scrutiny from Elliott, NPS and other investors. ($1 = 1,131.8200 won) (Reporting by Hyunjoo Jin; Editing by Stephen Coates)