Hyundai Motors’ India IPO will have imitators
MUMBAI: If Hyundai Motor’s up to $3 billion initial public offering of its Indian business crystallises a premium valuation as easily as expected, other multinationals could rush to list their local operations in the South Asian nation.
The South Korean carmaker on Saturday filed for a listing of the unit in Mumbai. The target valuation of up to $30 billion, per Reuters citing unnamed sources, is 53 times its earnings in the 12 months ended March 2023, compared to 32 times for its larger rival Maruti Suzuki, opens new tab and five times for its $48 billion Seoul-listed parent.
An IPO offers lots of benefits. It will crush the “Korean discount”, where companies trading in Seoul are plagued by lower valuations than Asian peers because opaque conglomerates dominate the market. Hyundai also can use the new richly valued shares to strike deals in India, where it wants to sell more expensive cars and increase its share of electric vehicles.
A listing outside Seoul offers some protection from any future funding squeeze at home. The default of a Legoland theme park developer, for example, caught large Korean companies off-guard in 2022 and pushed up borrowing costs.
The carmaker is the latest global company tapping aspects of what Marc Bitzer, CEO of US appliance maker Whirlpool, describes as “asset arbitrage”; the company sold a 24 per cent stake in its India unit in February. Similarly British American Tobacco in March sold a 3.5 per cent stake in its Indian peer ITC, and used the $2 billion proceeds to support a $895 million share buyback.
Companies usually shy away from floating their subsidiaries because it is not efficient to manage multiple listings.
The local listings of Unilever, Nestle, Pfizer, Siemens and Suzuki Motor, opens new tab enjoy big premiums but many are legacy structures. The difficulty of taking a company private in India is another reason to hold back. Yet India’s increasing importance as a growth market and its buoyant stocks may be changing the balance of the equation.
The case is strong for Japanese companies that are under pressure to boost shareholder value. Take Honda Motor Co, which counts the South Asian country as its top, opens new tab market for motorcycles.
Sumitomo Mitsui Financial Group could consider listing its Indian shadow bank which is growing 24 per cent year-on-year. Other foreign firms with large India businesses include Korea’s Samsung Electronics.
Hyundai’s deal is barely out of the door but bankers are salivating over the prospect of more just like it.
