[THE INVESTOR] US activist hedge fund Elliott Management ramped up its pressure on Hyundai Motors on Nov. 13 demanding to return excessive capital of 16 trillion won (US$14.12 billion) to shareholders and sell non-core assets.

In an open letter to Hyundai Motor and its affiliates Kia Motors and Hyundai Mobis, the US hedge fund led by billionaire Paul Singer said that the Korean group owns excessive capital and its shareholder returns lag behind industry peers such as General Motors and Toyota Motor, citing a report by consultancy Conway MacKenzie.

“The group is grossly overcapitalized with excess capital ranging from 8-10 trillion won for Hyundai Motor and 4-6 trillion won for Mobis,” it said.

The overcapitalization is attributed to “questionable use of cash reserves which has resulted in non-operating assets tying up valuable capital,” according to Elliott.

Elliott requested the firms to return excess capital to shareholders, preferably in the form of share buybacks, and conduct a strategic review of all non-core assets. 

The New York-based hedge fund also said in the letter that communication on corporate governance reform has been muted since Hyundai withdrew its original plan six months ago.

It urged the group to appoint independent directors on the respective boards of affiliates.

Elliott’s demand came as the country’s biggest carmaker faced a sharp decline in its third-quarter earnings and rate cuts amid poor sales prospects.

In May, Hyundai Motor Group attempted to spin off Mobis’ module manufacturing and after-sales business while merging with its logistics unit Hyundai Glovis as part of its governance reform plans, but the plan was dismissed due opposition led by Elliott.

It is estimated Elliott holds 6.4 million shares (3 percent) of Hyundai Motor, 8.6 million shares (2.1 percent) of Kia Motors and 2.5 million shares (2.6 percent) of Hyundai Mobis as of Aug. 13 when the hedge fund unveiled its stakes in a letter to Hyundai Group urging the group to rethink its restructuring plan.

In the August letter, Elliott offered a fresh proposal for the group’s restructuring, but Hyundai was unfazed by the offer and decided to halt the group’s restructuring.

“Given the costs of delay and lack of progress so far, Elliott also reserved the right to put forward other recommendations at the next general meeting,” it said.

By Park Ga-young (gypark@heraldcorp.com)