Hyundai Motor looks to placate investors with dividend boost

Hyundai Motor has promised to consider increasing its dividend payout in spite of falling earnings, in an apparent bid to assuage investor outrage over its planned $10bn outlay on a new headquarters.

"In order to carry out more shareholder-friendly policies, we will consider a wide range of measures, including increasing our dividend and possibly issuing interim dividends next year," Lee Won-hee, chief financial officer of the South Korean carmaker, said on Thursday.

He spoke after Hyundai published third-quarter results showing that net profit fell 28 per cent year-on-year to Won1.6tn ($1.5bn), hurt by unfavourable currency movements and weak sales of its new Sonata vehicle.

Hyundai, along with affiliates Kia Motors and Hyundai Mobis, dismayed investors and analysts last month by announcing plans to pay the national utility Kepco $10bn for a plot of land in Seoul's affluent Gangnam district, which will house the companies' new headquarters.

The land deal punctured a brief burst of optimism among investors about the outlook for South Korea's famously stingy dividend payments, after the government promised tax changes that would deter companies from hoarding cash.

It caused a fall in Hyundai's share price and contributed to a broader sell-off of South Korean equities, with the Kospi index contracting more than 6 per cent since the announcement.

"Clearly this is an excessive violation of shareholder rights," Mark Mobius, executive chairman of Templeton Emerging Markets, said this week. "There is thus good reason for the Korean equity market to be selling at a discount."

South Korea offers the lowest dividend payout ratios of any major Asian market, according to analysis by CLSA: something seen by most market professionals as the main reason for the relatively low valuation of its companies, known as the "Korea discount".

Hyundai's dividend for last year amounted to Won534bn, equivalent to just 6.3 per cent of net profit and representing a dividend yield of just 0.8 per cent. Its promise to consider shareholders' calls for higher cash returns comes amid similar pressure on South Korea's largest company, Samsung Electronics, which increased its dividend yield for last year from 0.6 per cent to 1 per cent.

Hyundai's shares rose 5.9 per cent on Thursday at Won171,000, apparently reflecting optimism over the dividend outlook as well as relief that third-quarter performance exceeded some bearish recent analyst predictions, even though it fell short of consensus forecasts.

Revenue increased by 2.2 per cent from a year earlier, reflecting a similar rise in global unit sales of vehicles. The profit decline was caused in part by an accounting quirk, said Angela Hong, an analyst at Nomura, noting that a drop in the South Korean won at the close of the period increased the translated cost of Hyundai's global warranty provisions.

A further factor was heavy marketing spending to promote the Hyundai's relaunched Genesis luxury car and Sonata Sedan, Ms Hong added.

Sales of the Sonata, which makes up about a tenth of Hyundai's unit sales, had been disappointing, Mr Lee said, blaming consumers' preference for larger vehicles.

He added that recent strikes in South Korea would pull domestic production below the annual target, but that the company would still exceed its global production goal of 4.9m cars through increased production elsewhere.

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