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By Joyce Lee
SEOUL (Reuters) - Hyundai Motor Group will pay a record $10 billion (6.1 billion pounds) for the site of its new headquarters in Seoul's high-end Gangnam district, out-bidding Samsung Electronics Co Ltd and raising investor concerns that it is wasting cash on a trophy property.
The conglomerate smashed the previous record auction price for a single plot of land in South Korea with its bid of 10.55 trillion won (6.2 billion pounds), more than triple the appraisal value.
Investors and analysts expressed alarm at the price Hyundai was willing to pay for a site where it plans to build an auto theme park and hotel as well as new offices, at a time when it could be pouring money into higher dividends or more auto factories.
"The bid price is nonsense. I was stunned," said Kim Sung-soo, a fund manager at LS Asset Management and investor in Hyundai companies.
"Even taking into account competition with Samsung, the bid price is excessive."
Shares in Hyundai Motor and sister company Kia Motors plunged 9 percent and 10 percent, respectively, after the winning bid was announced by seller Korea Electric Power (KEPCO). Shares in parts maker Hyundai Mobis Co, also part of the bid consortium, lost 7.5 percent.
Although Hyundai Motor Group has plenty of cash, Hyundai Motor Co and Kia, which together rank fifth by global auto sales, have been posting slowing profits as the strong local currency saps overseas earnings.
"This deal is going to take a huge chunk out of Hyundai's vault, and dipping their hands into a cash stash that could have otherwise been used for higher dividend payouts and R&D is going to aggravate many investors, especially foreigners," said Ko Tae-bong, auto analyst at HI Investment & Securities.
The companies also need to fund new factory projects in Mexico and China, which are expected to go into production in 2016.
KEPCO shares gained 7 percent after Hyundai won the auction by what a KEPCO official called "a wide margin". The official did not disclose the size of Samsung's bid and a Samsung Electronics spokeswoman declined to comment.
Hyundai Motor Group's 10 listed companies, excluding financial firms, had 42.8 trillion won in cash and equivalents at the end of the first quarter, according to public filings compiled by data consulting firm CEO Score.
CAR THEME PARK
While some investors were shocked at the move, Hyundai's big bid for a landmark in the heart of Seoul's trendiest district may help ease its tax burden under proposed rules that would tax excess corporate cash.
Based on last year's earnings, companies that belong to the Hyundai Motor Group would have the largest exposure to the law, facing 284 billion won in further taxes if the government required conglomerates to spend at least 60 percent of net profit on investment, wages and dividends, CEO Score has said.
Hyundai Motor Group has said it plans to build a vast complex on the 79,342 square metre site that will house its headquarters as well as a hotel, convention centre and a theme park. It noted that rivals such as BMW and Volkswagen have tourist attractions around their headquarters.
"In order to achieve production capacity of 10 million cars and bolster brand value that befits a global top-five company, we need a global business centre. The bid is the result of comprehensively reviewing its value as a symbol of the group's second growth phase," a Hyundai Motor Group spokesman said.
Hyundai and Kia have been keen to build a premium image around their brands to better compete with the likes of German rivals that are taking a rising share of the domestic market.
This was not the first time cash-rich Hyundai Motor Group drove up the price in a big auction.
A consortium of the same three Hyundai Motor Group companies bid around 5 trillion won in 2011 to buy Hyundai Engineering & Construction, which had been expected to fetch around 3 trillion won but had symbolic value as the original company of the Hyundai empire, founded in 1947 by Chung Ju-yung.
(Reporting by Joyce Lee; Additional Reporting by Meeyoung Cho, Hyunjoo Jin, Se Young Lee and Joonhee Yu; Editing by Tony Munroe and Stephen Coates)