Breakingviews - Hyundai is primed for a chaebol tune-up

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HONG KONG (Reuters Breakingviews) - Hyundai may finally be ready to tinker with its chaebol setup. The South Korean company warned of another $2.9 billion charge for engine troubles, but electric vehicles should propel its upcoming financial results. That would provide the necessary momentum for a broader restructuring.

    Euisun Chung's ascension to Hyundai Motor Group chairman this month was a symbolic, albeit historic, generational leadership change for the country's second-largest family-run conglomerate behind Samsung. For years, the 49-year-old scion has been tightening his grip over the autos-to-steel empire while steering an ambitious push into EVs and self-driving technology. In his inaugural speech to employees, Chung spoke of "opening a new chapter”.

    The succession has been overshadowed by problems at the group's crown jewels, Hyundai Motor Co and affiliate Kia Motor. Earlier this week, the companies flagged additional impairments relating to engine recalls in the United States dating back to 2015.

    Management has repeatedly told investors the debacle was in the rear-view mirror, meaning this will dent credibility. A more recent HMC recall of 77,000 battery-powered models adds to quality-control concerns.

    Even so, Hyundai is lurching in the right direction. Stripping out the charges, Citigroup expects that HMC’s “recurring” operating profit will more than double to 1.4 trillion won ($1.2 billion) in the third quarter from the previous three months. Its premium Genesis SUV model is a likely catalyst. And over the summer HMC’s electric vehicles grabbed an 11% market share in Europe, according to Mirae Asset analysts. By 2022, it is forecast to be the second-largest maker of battery-powered vehicles in the region among traditional automakers.

      HMC shares have surged by more than a third this year, outperforming global peers. That gives Chung some cover to clean up Hyundai’s complex web of cross-shareholdings that allow the founding family to keep control despite owning limited direct stakes in the individually listed companies.

      The structure has long irritated regulators, which are mulling new curbs on transactions among affiliate companies within a conglomerate. That will make it harder for founders and their families to exert control without increasing ownership. Switching to a holding company, as many of Hyundai’s compatriots have done, would make for a smoother ride down the road.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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