Mando Slumps as Split Seen Leading to Halla Share Purchases

Apr 08, 2014 2:56 am ET

(Updates with closing share price in second paragraph.)

April 8 (Bloomberg) -- Mando Corp., the biggest unit of South Korea’s Halla Group, tumbled the most in a year in Seoul trading as its plan to split into two raised investor concern that the company is preparing to buy more shares of affiliates.

Mando, which announced the plan after market hours yesterday, plunged by the 15 percent daily limit to close at 115,000 won. That was the stock’s biggest decline since April 15. Halla Corp., Mando’s largest shareholder, rose 2.4 percent, while the benchmark Kospi index advanced 0.2 percent.

Macquarie Group Ltd. cut its rating on Mando stock, and BNP Paribas SA said the move will probably drain value for minority shareholders. The announcement comes a year after Mando’s bailout of a construction affiliate drew opposition from investors including Midas International Asset Management Ltd. and Truston Asset Management Co.

“This plan could also be a way to inject cash into its largest shareholder, Halla Corp.,” James Yoon, a Seoul-based analyst at BNP Paribas, wrote in a note today. “We believe this action would result in a reduction of Mando’s corporate value due to the loss of cash.”

Mando will split into two. One company, Halla Holdings Corp., will focus on investments, while the other, Mando Corp., will continue to make auto parts, according to a regulatory filing yesterday.

The new Mando will take 70 percent of the current company’s assets and 52 percent of capital, according to the filing. Existing stakeholders will be given 0.52 share of Mando and 0.48 of Halla Holdings for each share they own.

‘Closely Monitor’

“We will closely monitor the effects of the split on Mando’s business,” Lee Sung Won, senior executive vice president at Truston Asset Management, which owns 11 percent of Mando, said by telephone today.

Mando will hold a shareholders’ meeting on July 28 to get approval, and plans to split on Sept. 1, the company said. Trading in Mando’s shares will be halted from Aug. 28 to the day before the re-listing of the two companies’ stocks, scheduled for Oct. 6.

Last month, South Korea’s $400 billion National Pension Service made a stand against Halla Group by voting to block the extension of Shin Sa Hyeon’s term as chief executive officer at the auto parts maker’s annual general meeting. The fund said he should be held accountable for Mando participating in last year’s bailout of the group’s unprofitable construction unit.

Shareholding Structure

The pension fund, the world’s third largest, has a 14 percent stake in Mando, making it the biggest stakeholder of the company after Halla’s 17 percent, according to data compiled by Bloomberg. Truston and Assetplus Investment Management Co., which also holds Mando shares, joined the pension fund in opposing the extension for Shin. They lost as about 70 percent were in favor of the re-appointment.

Mando’s chairman, a cousin of Hyundai Motor Co. Chairman Chung Mong Koo, is the biggest shareholder in Halla Corp. with 24 percent, according to data compiled by Bloomberg. Mando also owns 16 percent of Halla through Meister Inc., the data show.

The pension fund’s opposition traces back to a transaction last year, when Mando bought 378.5 billion won ($359 million) of new shares in Meister, which in turn invested 338.5 billion won in Halla Corp., then called Halla Engineering & Construction. That deal drew opposition from investors including Midas International and Truston, and defied government calls for limiting cross shareholdings in family-controlled groups.

“This increases the uncertainties of the company’s corporate structure,” Yim Eun Young, an analyst at Samsung Securities Co. with a hold rating on the stock, wrote in a report today. “There is high possibility that shareholders will interpret this as a deal to increase the majority shareholder’s control over the company.”