General Electric Co.’s financing unit reportedly said on Monday it would buy a $US371 million stake in Hyundai Motor’s ailing financial arm to expand into South Korea’s $8.6 billion auto financing market.
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Hyundai Capital Services Inc., 84% owned by Hyundai Motor, said the US company would invest a total of 1 trillion won ($859 million) in the auto finance and lease firm by 2006, Reuters reported.
The investment into Hyundai Capital reportedly cuts Hyundai Motor’s exposure to the unit, which suffered a net loss of 187.3 billion won last year, and also helps bolster Hyundai Capital’s financial structure and brings in financial expertise.
Hyundai Capital said in a statement cited by Reuters that GE Consumer Finance (GECF), which changed its name from GE Capital in 2001, would pay 432 billion won for a 38% stake, or 16,000 won per share, with an option to buy an additional 5% in 2006.
“The price looks good. Hyundai received 16,000 won per share versus 6,000 won in book value, leaving a hefty premium,” Sohn Jung-won, auto analyst at Goodmorning Securities, told the news agency. “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.”
Reuters noted that Hyundai Motor has been forced to bail out its once high-flying finance units, which have been hit by rising consumer defaults and cutthroat competition.
Hyundai Capital has 48 branches and 4,000 employees in Korea and more than 13 trillion won in assets, the report said.
