By In-Soo Nam
SEOUL--The failure of a Swiss elevator maker to stop a Hyundai
Group company from revising its rules to increase share capital has
frustrated foreign investors who want changes to South Korea's
corporate governance.
Schindler Holding AG said Friday it voted against Hyundai
Elevator Co.'s bid to triple the size of its authorized capital to
60 million shares. Despite the opposition, the plan was approved at
the annual general meeting.
"It is regretful that the amendment which will enable Hyundai's
management to continue utilizing the company for its own personal
purposes and to further harm the interest of the existing minority
shareholders has been passed," Schindler said in a statement.
Schindler, the second-largest shareholder of Hyundai Elevator
with a 21.5% stake, has said it would boycott Hyundai management's
attempt to seek a paid-in capital increase, saying it would hurt
minority shareholders.
In expanding the official limit on new shares, Hyundai Elevator
can theoretically issue up to 40 million more shares. The company's
current market capitalization is 1.37 trillion won ($1.24
billion).
The case reflects the concerns of many foreign investors about
corporate governance at Korea's complex, family-controlled
conglomerates, known as chaebol. Analysts have said weak governance
and a lack of transparency in decision-making have been a key
factor in the "Korea discount," which prunes equity valuations in
the country.
The Swiss company said earlier this week that Hyundai's proposal
to expand its capital base is designed to protect management
interests, while diluting minority shareholders' stakes in an
effort to "silence" them and keep them from checking the propriety
of management decisions.
A Hyundai Elevator spokesman said Friday the revision of the
rules is intended to establish legal ground for future financing
purposes.
"We don't have any immediate plans to issue rights or new
bonds," he said.
Since taking a stake in Hyundai Elevator in 2006, Schindler has
been engaged in a series of disputes over the group's capital
increases and financial assistance for ailing affiliates.
Investors have long complained about a lack of transparency and
outside oversight at many chaebol, which are generally controlled
by founding families. Top managers typically wield power in major
decisions, such as capital spending, despite having relatively
small shareholdings in key operations.
Unlike the U.S., where institutional investors are spearheading
shareholder activism, in Korea it has often been foreign investors,
who hold a third of Korean equities.
Hyundai Motor Co. was criticized by investors in September when
it and two affiliates, Kia Motors Corp. and Hyundai Mobis Co.,
bought a plot of land for new headquarters in southern Seoul for
about $10 billion--three times the assessed value.
Shares in the three companies fell to multiyear lows after the
deal.
Write to In-Soo Nam at In-Soo.Nam@wsj.com
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