Why Is Hyundai Department Store Group Boosting Its Stakes in Affiliates Ahead of Governance Restructuring?

Handsome 42%, Daewon Kang Up 40%
Expanding Stakes in Undervalued Affiliates
Hyundai Home Shopping Spin-Off and Merger Gain Momentum
Subsidiary Values to Be Reflected Directly

Hyundai Department Store Group is drawing attention as it moves to overhaul its governance structure while steadily increasing its stakes in key affiliates. Hyundai Home Shopping's stake in Handsome rose automatically after Handsome canceled treasury shares, and it has since invested cash directly to acquire additional shares. Meanwhile, Hyundai GF Holdings, the group's holding company, has continued to increase its stake in auto parts affiliate Daewon Kang Up this year. The moves are seen as an effort to secure stakes in undervalued key affiliates ahead of the restructuring, which coincides with the spin-off and merger of Hyundai Home Shopping.

According to the Financial Supervisory Service's electronic disclosure system on October 11, Hyundai Home Shopping recently raised its stake in Handsome from 40.50% to 42.92% by purchasing additional shares on the open market. A substantial portion of the 2.42-percentage-point increase resulted from Handsome's cancellation of treasury shares. In April, Handsome canceled 967,530 treasury shares it held. As a result, although the number of Handsome shares held by Hyundai Home Shopping remained unchanged, its ownership stake increased by 1.81 percentage points, from 40.50% to 42.31%. Hyundai Home Shopping nevertheless invested additional funds to buy more Handsome shares on the open market.

Handsome is also set to continue canceling treasury shares. The company has announced a mid- to long-term shareholder return policy under which it will repurchase and cancel treasury shares worth KRW 10 billion annually from 2026 through 2028, for a total of KRW 30 billion. It has also raised its dividend payout ratio, based on separate operating profit, to at least 20% and set a minimum dividend of KRW 800 per share. If the treasury share cancellations proceed as planned, Hyundai Home Shopping's stake in Handsome will rise further even if it does not increase the number of shares it holds.

Hyundai GF Holdings has also continued to buy shares in auto parts affiliate Daewon Kang Up this year. Its stake in Daewon Kang Up has risen from the low 32% range at the end of last year to the 40% range recently.

Daewon Kang Up is an "in-law company" with longstanding ties to Hyundai Department Store Group. Chung Kyo-sun, vice chairman of Hyundai Department Store Group, married Heo Seung-won, the eldest daughter of Daewon Kang Up Chairman Heo Jae-cheol. In 2009, when Daewon Kang Up faced a threat to its management control, Hyundai Department Store Group came to its defense as a white knight, acquiring a 7.67% stake through Hyundai Home Shopping. The group has steadily increased its stake since then. In 2022, it acquired an additional 14.13% stake held by Chairman Heo's family, becoming the largest shareholder. Following the group's transition to a holding company structure and other changes, Hyundai GF Holdings is now Daewon Kang Up's largest shareholder.

Hyundai Department Store Group said the increased stakes reflect its investment in undervalued key affiliates and its effort to expand its control over them. A group official said, "We have also bought shares in affiliates that we believed were relatively undervalued in the past, and this increase in our stake is part of that approach." The official added that "no decision has been made at this time" regarding further purchases or a target ownership level.

The increase in stakes in affiliates is drawing further attention as it coincides with Hyundai Department Store Group's governance restructuring. In December, Hyundai GF Holdings plans to split Hyundai Home Shopping into an investment division and a business division, then absorb the investment division, which holds stakes in affiliates including Handsome, through a merger. Once the restructuring is complete, Handsome, currently a subsidiary of Hyundai Home Shopping, will become a direct subsidiary of Hyundai GF Holdings. The additional stake in Handsome recently acquired by Hyundai Home Shopping will consequently come under the holding company's direct control.

The restructuring will address restrictions on the activities of holding companies related to Hyundai Bioland, while also consolidating investment decision-making under Hyundai GF Holdings. Hyundai Bioland is currently a great-grandchild company of Hyundai GF Holdings, and under current law, the holding company must own 100% of its shares, but in practice its stake is only 35%. If Hyundai GF Holdings absorbs Hyundai Home Shopping's investment division through the restructuring, Bioland will become a second-tier subsidiary, allowing the group to resolve the regulatory issue without buying additional shares.

The growing importance of key affiliates to Hyundai GF Holdings' earnings is also cited as a reason for expanding its control. Hyundai GF Holdings' equity-method income on a consolidated basis was KRW 66 billion in the second quarter of this year, up 40.5% from the same period last year. Daewon Kang Up, in particular, posted a 12% year-on-year increase in revenue during the same period, while operating profit and net income rose 132% and 274%, respectively.

"The equity-method gains of Hyundai GF Holdings are improving as the earnings structures of Hyundai Department Store and Daewon Kang Up improve," said Kim Jang-won, a researcher at BNK Securities. "After the restructuring of Hyundai Home Shopping's governance, the value of its existing subsidiaries will be reflected more directly in the holding company, increasing their contributions to earnings and control."

This content was produced with the assistance of AI translation services.