Hyundai Motor Group Chairman Chung Eui-sun Chung rings a bell at the listing ceremony of the Indian subsidiary on the local stock exchange at the National Stock Exchange (NSE) in Mumbai, India, on Wednesday (22 April).
Hyundai Motor India Vice President Eun-Soo Kim, President Jae-Hoon Jang, Hyundai Motor Group Chairman and CEO Chung Eui-Sun Chung, and NSE Chief Operating Officer Ashish Chauhan attend the listing ceremony.
[Courtesy of Hyundai Motor Company]
[BizCheck=Hye-Yeon Hong] Hyundai Motor India (HMI) went public on the Indian stock market on 22nd April. The IPO, the largest in the country's history, attracted great interest, but the results were not as expected as the stock price fell by more than 7 per cent on the first day of trading. Amidst the debate about the background and future challenges, the listing of Hyundai Motor India shows that there are many issues that need to be resolved in the future.
7% drop on the first day of the IPO, mainly due to excessive offering price and Indian market conditions
Hyundai Motor India's IPO attracted global attention as the largest IPO in India's history, with 14.21 million shares priced at Rs. 1865-1960 per share, raising a total of Rs. 27.85 billion (approximately $3.3 billion).
However, on the first day of trading, the stock fell 7.2 per cent to close at 1819 rupees, below the low end of the offering price of 1865 rupees. This has led to criticism that the IPO was overpriced and not aligned with market conditions.
Local media and experts have pointed to the high listing price as the main reason for the failure, while the fact that the Indian auto market is not yet ready for electric vehicles has also had a negative impact. The royalty payments that
Hyundai's Indian subsidiary has to make to its headquarters have also raised concerns among investors. Nevertheless, in the long term, the Indian auto market is likely to grow and the business could improve in the future.
‘The IPO is oversubscribed and priced well, but there is not much short-term upside for investors,’ Kranti Bhattini, director of equity strategy at Wealthmills Securities, told CNBC. However, he said Hyundai Motor India ‘can be seen as a positive investment in the medium to long term’ given its fundamental value and growth potential.
◇4.5 trillion won, but expansion in India is limited
With the IPO, Hyundai Motor India will raise about 4.5 trillion won ($4.5 billion). The funds are expected to be utilised for various business expansions in India. However, due to India's strict foreign exchange management system, most of the funds are likely to be reinvested locally. It is not easy to take foreign currency out of the country, so it is unlikely that Hyundai Motor India will be able to freely utilise the funds on a global scale.
There is also the question of where to invest the funds within India. The demand for EVs in the Indian auto market is still low, which limits Hyundai's ability to focus on the EV business. Nevertheless, the demand for electric vehicles in India is expected to increase in the long term, and Hyundai needs to make strategic investments to prepare for this.
◇Strong rights for minority shareholders, a big variable in management
One of the biggest challenges for Hyundai Motor India's listing is India's minority shareholder rights protection system. In India, the rights of minority shareholders are strongly guaranteed by law, and minority shareholders can exercise substantial influence on major decisions of listed companies. For example, a company cannot raise the salaries of its employees above a certain level if some minority shareholders object. Even a planned investment of more than Rs. 1 billion (KRW 16 billion) per year can be cancelled if only 1% of minority shareholders oppose it.
This could be a major factor in Hyundai Motor India's future business expansion and investment decisions. Unlike in South Korea, where outside directors are mostly tycoons, in India, minority shareholders are the actual outside directors. This is likely to act as a constraint on management's decision-making.
◇Strong unions, labour laws and industrial relations are also new challenges
As Hyundai Motor India transforms into a local listed company, labour relations issues are also expected to become a new challenge. India is a country with strong labour laws, and strikes are likely to occur frequently. Currently, Samsung Electronics is also suffering from strikes with Indian unions, so Hyundai Motor India is expected to face conflicts with unions.
As Hyundai Motor India becomes a publicly traded company, the influence of the unions is likely to increase. Therefore, Hyundai Motor India needs a specific strategy on how to respond to the union's demands and how to resolve production disruptions caused by strikes.
◇Challenges in governance and fund management
Another challenge facing Hyundai's Indian subsidiary is the country's governance. India is a country with strong government intervention in the financial market, which can lead to strict management and interference in the management of a company's funds. The Indian government is likely to impose strong standards on how Hyundai Motor India uses the funds and ensure that the flow of funds is managed transparently. Any mismanagement of the funds could lead to serious consequences, including suspension of banking transactions.
◇Internal opposition and Jang's initiative
Despite these risks, the listing of Hyundai Motor India was strongly supported by Jang Jae-hoon, CEO of Hyundai Motor India. It is reported that there were many concerns within the Hyundai Motor Group about the listing. Even within Hyundai Motor India, there was opposition to the listing, but Jang insisted on it.
Jang previously served as an executive at Hyundai Globis before moving to Hyundai, where he served as head of management support, head of domestic business, and head of the Genesis business, and has been CEO of Hyundai since 2021. He is one of the first presidential appointments since Chung took over as chairman of Hyundai Motor Group and is considered to be one of Chung's closest confidants.
Some have interpreted the listing as part of Chung's strategy to strengthen his control over the group. If the Indian entity acquires a stake in Hyundai's headquarters, it could further strengthen Chung's control over the group. However, it is unclear whether such a plan will be realised given India's strong regulatory and minority shareholder rights protection system.
◇International media attention and future challenges
International media have also expressed scepticism about the listing of Hyundai Motor India. The Financial Times said that ‘Hyundai Motor India's valuation may be overstated at $19 billion’ and that ‘the current share price is too high’.
Rather than relying on synergies with its headquarters, Hyundai Motor India now has to operate independently in India. It remains to be seen how successfully Hyundai Motor India will be able to expand and grow its business amid India's strict financial regulations, labour laws, and strong minority shareholder rights protection system.
Hye-Yeon Hong Reporter hongyang0427@naver.com
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