Hyundai sees value in $10 billion land grab

Hyundai sees value in $10 billion land grab

Hyundai-MotorsThe Hyundai Motor Group is preparing to pay a record US$10 billion (A$11.19 billion) for the site of its new headquarters in Seoul’s high-end Gangnam district, out-bidding Samsung Electronics and sparking investor concerns that it is wasting cash on a trophy property.

If it goes ahead, 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 US$3.6 billion paid last year by Hong Kong’s Sun Hung Kai Properties 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,” says Kim Sung-soo, a fund manager at LS Asset Management and an investor in all the three Hyundai companies in the bidding group.

automediagrp“Even taking into account competition with Samsung, the bid price is excessive,” Kim said, adding that he expected it to cost another US$6 billion to develop the property.

Hyundai Motor Co shares fell 9%, their biggest drop in three years, after the bid was announced by the seller, state-run Korea Electric Power (KEPCO).

Sister firm Kia Motors closed 7.8% lower and parts maker Hyundai Mobis Co, also in the bid group, declined 7.9%. Between them, the three lost nearly US$8 billion in market value last Thursday.

“This deal is going to take a huge chunk out of Hyundai’s vault, and dipping their hands into a cash stash that could have otherwise been used for higher dividend payouts and R&D is going to aggravate many investors, especially foreigners,” Ko Tae-bong, auto analyst at HI Investment & Securities told Reuters.

Both Hyundai and Kia also need to fund new factory projects in Mexico and China, which are expected to go into production in 2016. Foreign investors own 46% of Hyundai shares.

This was not the first time cash-rich Hyundai Motor Group drove up the price in a big auction.

A consortium of the same three Hyundai Motor Group companies bid around 5 trillion won in 2011 to buy Hyundai Engineering & Construction, which had been expected to fetch around 3 trillion won but had symbolic value as the original company of the Hyundai empire, founded in 1947 by Chung Ju-yung.

This article originally appeared on Yahoo7. To read the full article click here.

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