One of Hong Kong’s family-controlled business empires — Li Ka-shing’s — has just been simplified. Its main constituent stocks popped by more than 10 per cent. No such luck for minority shareholders in South Korea’s empires, which are as messy as ever. The founding families of South Korea’s chaebol exercise control through cross-holdings. Investors’ time is often best spent determining where the family interests lie, rather than analysing the economic performance of group companies.
Hyundai, South Korea’s second largest business group by revenue, fits this pattern. On Tuesday, shares in group company Hyundai Glovis dropped 15 per cent. The explanation was a failed placement of $1.25bn. The sellers, the founding Chung family, could not get it away, despite the 12 per cent discount to the last close.
Failure means that a sale may come later and at a lower price. The family needs to sell. The Chungs — father and son — directly own 43 per cent. South Korean government regulations designed to reduce the stranglehold of chaebols (and their founding families) on the economy took force last February. The rules allow the government to levy fines if it deems intra-group transactions unfair, where controlling families hold stakes of 30 per cent or greater. Hyundai Glovis, a logistics operator for the group, is routinely involved in intra-group activity. (The family has not yet been fined).