Hyundai-Kia $10 billion land purchase kills dividend hopes image

According to the Hyundai Motor Group, the 10.6 trillion won ($10 billion) acquisition of a prized land plot in Seoul would be funded from the available cash the company has.

That’s a hit for shareholders, as the decision to skip the usual process of issuing debt means the investors’ hopes to see a larger dividend this year is seriously jeopardized. Hyundai Motor, Hyundai Mobis and Kia Motors have announced in a statement they won’t resort to the debt procedure as they move to pay for the plot they would use to construct a new global headquarters in the city’s central Gangnam district.

The news has dampened shareholder expectations to have higher payouts at the end of the fiscal year after South Korea’s government moved to support companies to offer larger salaries and dividends by axing a 10 % punitive tax on corporate cash hoards.

The plot acquisition, which is reportedly three times the value of the land’s initial appraisal, has angered both the automaker’s workers and shareholders. The first initiated a partial strike at both Hyundai and Kia (the labor dispute has been resolved in the mean time) and the latter have shed around $18 billion in combined market value from the group.

Hyundai Motor – South Korea’s largest auto manufacturer has agreed to pay 55% of the cash, with Hyundai Mobis inputting another 25% and Kia Motors the rest. Among them, the three companies have cash, near cash and short-term investments valued at around $38 billion at the end of June.

Via Bloomberg