Mando Corp. (060980), South Korea’s third- largest maker of car parts, bought new shares of an affiliate, defying investor opposition and government calls for limiting cross shareholdings in family-controlled groups.
Mando bought 378.5 billion won ($338 million) of new shares in wholly owned affiliate Meister Inc., which in turn invested 338.5 billion won in Halla Engineering & Construction Corp. (014790), according to regulatory filings yesterday. Halla surged the most in three months in Seoul trading today, while Mando fell to a record low.
The completed transaction invalidates an injunction filed yesterday by Truston Asset Management Co., Mando’s second- biggest holder, to prevent the deal. South Korean President Park Geun Hye has pledged to limit cross shareholdings to prevent family-controlled industrial empires, known as chaebol, from practices that the International Monetary Fund has said contributed to the nation’s 1997-1999 financial crisis.
“Mando’s decision goes directly against the recent trend in South Korea to improve corporate structure, as this reinforces the cross-shareholding structure,” Heo Pil Seok, chief executive officer at Midas International Asset Management Ltd., said by phone today.
Midas yesterday said it sold its Mando shares. Halla is Mando’s biggest shareholder.
Both Halla and Mando have Chung Mong Won as chairman. Mando is 20 percent owned by Halla, whose biggest shareholder is Chung. Mando owns 5.4 percent of Halla through a wholly owned unit. Chung is a cousin of Hyundai Motor Co. Chairman Chung Mong Koo.
Chung Mong Won bought 1,200 Mando shares on the open market today after purchasing 1,300 shares yesterday, according to regulatory filings.
“We are truly sorry for the stockholders’ loss and will try our best to recover as soon as possible,” Kim Man Young, an executive director for corporate finance at Mando, said at a meeting with investors in Seoul today. “This was an unavoidable action to take in order to save both Mando and Halla.”
Halla rose 6 percent to close at 5,620 won in Seoul, the stock’s biggest increase since Jan. 16. Mando declined 3 percent to 76,600 won, its lowest closing price since May 2010, when it listed.
“The biggest concern for the investors is that this may not be the last time Mando helps Halla,” Lee Sang Hyun, an analyst at NH Investment & Securities Co., said today. “All they have are vague promises from the company that Halla Engineering will improve its financial status, but we don’t know if and when that will happen.”
Truston, Mando’s second-biggest shareholder, filed an injunction with the Seoul Eastern District Court to prevent the transaction.
Mando said it “regrets some investors’ decision” to file the injunction.
Brokerages including JPMorgan Chase & Co., Standard Chartered Plc and Macquarie Group Ltd. lowered their ratings on Mando after the deal was announced. Less than half of the 37 analysts tracked by Bloomberg recommend buying the stock.
“This issue is very big problem for the shareholders,” said Heo of Midas, which oversees about $5.4 billion and had owned more than 20,000 Mando shares. “I expect shareholders to take action such as file a lawsuit to try to hold the management responsible.”
South Korea’s National Pension Service is concerned Mando’s plan may damage shareholder value, and is reviewing ways to respond, the country’s biggest investor, with about $350 billion in assets as of January, said yesterday.
The investment will not have a “decisive impact” on a planned initial public offering of Mando’s China unit in Hong Kong, said Kim, the corporate finance executive. Still, if the valuation of Mando China Holdings’ translates to a market value of below 1 trillion won, the company will either “delay or even suspend” the sale, he said.
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