Is It a Grateful Investment or a Coincidence? Key Issues in Hyundai Motor and KT's Boeun Investment Allegations

KT·Spark - Hyundai Motor·Airplug Acquisition
Major Related Parties Conduct Mutual Transactions with Time Difference
Prosecutors Focus on KT Investigation of Spark Valuation and Acquisition Process

"The sale price received when transferring Airplug to Hyundai Motor Company exceeded 24.5 billion KRW, but the amount received by the founder, CEO Gu Jun-mo, was only about 1 billion KRW. It cannot be considered preferential treatment." (Former KT CEO Koo Hyun-mo)

"We paid special attention to fairly evaluating the value when determining the acquisition price of Airplug, and sincerely explained the process to the investigative authorities. We believe the issue will not escalate further." (Hyundai Motor Company official)

In the course of investigating allegations of breach of trust by former KT management, the fallout is now affecting Hyundai Motor Company. According to comprehensive reporting by this outlet, the Seoul Central District Prosecutors' Office Fair Trade Investigation Division conducted a raid last month on KT, KT Cloud, Open Cloud Lab, and others. KT's subsidiary KT Cloud acquired Spark & Associates (hereafter Spark) last September for 20.68 billion KRW and subsequently renamed the company Open Cloud Lab.

Recently, Legal News reported that the prosecution also raided the accounting firm that evaluated Spark's value during the acquisition process. The prosecution suspects that former KT management purchased Spark at an inflated price and is working to prove this. Spark was founded in 2005 by CEO Park, the brother-in-law of Hyundai Motor Chairman Chung Eui-sun. Industry insiders say the prosecution has begun a full-scale investigation into the so-called 'mutual favor investment suspicions' between KT and Hyundai Motor Company.

Authorities view KT's acquisition of Spark and Hyundai Motor's acquisition of Airplug shares as a paired transaction. Hyundai Motor invested in Airplug, a connected car solution developer, in 2019, initially acquiring a 16.8% stake. Two years later, in 2021, Hyundai Motor purchased virtually all shares for 24.5 billion KRW. Airplug was founded in 2010 by CEO Gu Jun-mo, who majored in electronic engineering at Seoul National University and KAIST. Gu Jun-mo is the older brother of former KT CEO Koo Hyun-mo. Additionally, Airplug received investments from venture capital firms Translink and SPK Inc., both companies established by Park, the founder of Spark.

A yellow light is on at the traffic signal in front of the Hyundai-Kia Motors headquarters in Seocho-gu, Seoul. Photo by Jinhyung Kang aymsdream@

Former CEO Koo Hyun-mo explained to close associates, "At the time of acquisition, CEO Gu Jun-mo's share profit was only about 1 billion KRW, so it is difficult to call it preferential treatment." In other words, CEO Park, who purchased a large portion of Airplug shares through investment, was the actual largest shareholder of the company. Naturally, the benefits of the sale went to CEO Park, not the founder Gu Jun-mo. The prosecution is also reportedly viewing CEO Park as the actual major shareholder of Airplug. Hyundai Motor's position is that, since CEO Park and Chairman Chung Eui-sun have a special relationship, they paid extra attention to the valuation at the time of acquisition. They believe they have sufficiently explained this to the prosecution and that the fallout from the KT investigation will not escalate into a major issue. Airplug recorded sales of 6.04367 billion KRW and an operating profit of 155.66 million KRW in 2020.

Judging by the targets of the raids, the current focus of the prosecution's investigation is KT's acquisition of Spark. Hyundai Motor's Airplug acquisition transaction is a secondary issue. However, since Hyundai Motor and CEO Park are also parties to the transaction, the legal community predicts it is unlikely they will be completely excluded from the investigation.