SEOUL (Bloomberg) -- Hyundai Motor Co. and its two affiliates will use cash to fund their 10.6 trillion won ($10 billion) purchase for a land site in Seoul, raising concern the companies will reduce shareholder payouts.
Hyundai Motor, Hyundai Mobis Co. and Kia Motors Corp. won’t issue debt to fund the purchase, the South Korean company said in an e-mail on behalf of the consortium. The automaker will build its new global headquarters at the site, which is located in the city’s central Gangnam district.
The decision to use cash will damp investor optimism that South Korea’s largest automaking group will increase their dividend payouts. The government had announced plans in August to encourage businesses to increase wages and dividends by levying a 10 percent punitive tax on corporate cash hoards.
The three companies have lost more than $16 billion in combined market value since the Hyundai-led group won the land auction after offering triple the assessed value.
“We had hopes for a higher dividend but those hopes are all gone,” said Heo Pil Seok, CEO at Midas International Asset Management Ltd, which oversees $10 billion. “The three companies involved in the property purchase hold enough cash to fund the deal and therefore it won’t have an impact on the companies’ credit ratings.”
The three companies had cash, near cash and short-term investments amounting to about $38 billion at the end of June, according to data compiled by Bloomberg.
The boards at the three companies, all part of billionaire Chairman Chung Mong-koo’s automotive group, approved the offer for the land without knowing the price, according to corporate watchdog Solidarity for Economic Reform, citing minutes of the board meetings obtained from the companies.
Hyundai will pay 55 percent of the total, followed by Hyundai Mobis with 25 percent and Kia Motors footing the rest. The land was put on the market in July by state-run Korea Electric Power Corp. ahead of its relocation to the south of the country as part of a government regional development plan.
Hyundai Motor Group has said its plans for the site include a hotel, convention center and auto theme park. The group plans to move 30 of its affiliates to the new site, it said in a statement.