SEOUL -- General Electric Co.'s financing unit said on Monday it would buy a $371 million stake in Hyundai Motor Co.'s ailing financial arm to expand into South Korea's $8.6 billion auto financing market.
Hyundai Capital Services Inc., 84 percent owned by carmaker Hyundai Motor, said the U.S. company would invest a total of 1 trillion won ($859 million) in the auto finance and lease firm by 2006.
The investment into Hyundai Capital cuts Hyundai Motor's exposure to the unit, which suffered a net loss of 187.3 billion won last year. It also helps bolster Hyundai Capital's financial structure and brings in financial expertise.
Hyundai Capital said in a statement GE Consumer Finance (GECF), which changed its name from GE Capital in 2001, would pay 432 billion won for a 38 percent stake, or 16,000 won per share, with an option to buy an additional 5 percent in 2006.
"The price looks good. Hyundai received 16,000 won per share versus 6,000 won in book value, leaving a hefty premium," said Sohn Jung-won, auto analyst at Goodmorning Securities.
"The investment will help Hyundai Motor a lot. The finance business has been the only uncertainty for the auto maker. The investment offers Hyundai Capital a chance to fully restructure."
Hyundai Motor has been forced to bail out its once high-flying finance units, which have been hit by rising consumer defaults and cut-throat competition.
"Korea represents a significant and strategic area of growth potential for GE Consumer Finance and this joint venture gives us immediate scale in partnership with one of the country's premier brands," said David R. Nissen, President and CEO of GE Consumer Finance, who was in Seoul for the signing of the agreement.
Hyundai Capital has 48 branches and 4,000 employees in Korea and more than 13 trillion won in assets.
"With a strategic alliance with GECF, we expect higher international credit ratings and a decrease in supply interest rates, which will pave the way for our jumping into the global financial service scene," said Tae-young Chung, the chief executive of Hyundai Capital.
Eyeing a presence in the growing auto finance and lease market, GMAC, a financial unit of General Motors, and unlisted Samsung Card have agreed to set up a joint venture with 20 billion won in capital.
As well as the auto-finance arm, Hyundai has a credit card firm.