Hyundai auto unit to be hived off

Hyundai Motor’s stock fell 700 won to close at 16,100 dueto the sudden inundation of its shares into the market. Analysts said Chung’s stake sale could dampen Hyundai Motor’s share price in the short term. But the company should see a boost in the long term once its divorce from the group is completed.

"The share sale is likely to drag down the price of Hyundai Motor shares for the time being," said Joe Lee, analyst at Daiwa Securities. "But the separation of Hyundai Motor now looks like a reality and that will block risks coming from the group.

Analysts and investors applaud the spin-off plan for Hyundai Motor because that would mean the profitable automaker would no longer have to support money-losing affiliates in the group. The country’s largest carmaker earned 310.4 billion won in net profit during the first half of this year, up sharply from 110.2 billion won profit the same period in 1999. Its first-half sales jumped to 8.47 trillion won from 6.05 trillion won a year earlier.

Spiders Web: Korea’s family-owned conglomerates, known locally aschaebol, are typically structured as a spider’s web of interlocking shareholdings, subsidies and debt guarantees among group units.

The financial supervisory service put Hyundai Group’s total debts at 75 trillion won on a consolidated accounting basis. Hyundai said it will submit an application for the spinoff to the Fair Trade Commission (FTC) on Wednesday or Thursday, Hyundai officials said.

In order to spin off the auto firm, the FTC requires thegroup or its owner to hold no more than three percent. Chung had held a 9.1 percent stake in the automaker.

Spokesman Lee said the FTC would examine the list of sharebuyers to see if they are "friendly investors". Hyundai Securities, a brokering unit of the Hyundai Group, handled the stake sale.

Analysts have said a sale to local investors, managed bythe group’s brokerage unit, might raise questions about whether the stake was being sold off to Hyundai group proxies.

"Hyundai has lost consistency in handling the spinoff ofHyundai Motor," said Richard Pyo, analyst at Credit Suisse First Boston. "Markets still suspect there might be a buyback agreement."

Lee of Hyundai said the combined bids of local investorswere estimated at 17 million shares, compared with 12.7 million shares offered for sale in a public placement.

Headquarters Building

The estimated 199.5 billion won in proceeds from the sale,which will be received later on Thursday, would be used to buy commercial paper issued by troubled Hyundai Engineering and Construction, Lee said.

In a separate announcement, Hyundai Engineering said onTuesday it had sold its headquarters building in Seoul to raise 46.8 billion won as part of its efforts to avert debt default.

Hyundai Group has made several different announcementsabout the sale of 84-year-old Chung Ju-yung’s stake and, indeed, about plans for the group and its flagship auto unit.

Last week, Hyundai said it would sell the stake to itsgovernment-led creditors, but on Monday, the group said the stake would be sold to a foreign brokerage. Both of those plans went awry over pricing issues, the group said.

Edward Campbell-Harris, manager of the Seoul branch ofJardine Fleming, told Reuters the firm had talked with Hyundai. "We did have talks. We did not do the placement."