South Korea has issued a warrant to arrest Chung Mong-koo, the chairman of Hyundai Motor group, on charges of misusing company funds, a senior prosecutor said on Friday.

The arrest warrant has been just issued, Chae Dong-wook, a senior prosecutor at the Supreme Prosecutors' Office, said by telephone. Chung will be arrested around 10 p.m. (1300 GMT).

Prosecutors are also seeking to indict Chung Eui-sun, the chairman's son and president of Kia Motors Corp., without detaining him.

The news comes amid concerns of a leadership vacuum at the country's top car maker that is pushing to become the world's fifth-biggest car firm by 2010 along with affiliate Kia.

Both executives were questioned in the past week over whether the Hyundai group operated slush funds and offered cash for political favors via a lobbyist.

The probe has also touched on how the country's sprawling family-run conglomerates, or chaebol, shift money within group companies, using complex share ownership networks to control their businesses.

Embezzlement and misappropriation of corporate funds -- involving over five billion won -- can each carry life jail terms in South Korea.

I'm speechless, a Hyundai Motor spokesman said. We are in shock, he said, declining to discuss details.

BUSINESS PRACTICES

Prosecutors have also questioned Hyundai Motor Vice Chairman Kim Dong-jin, who received a suspended two-year jail term in 2004 for playing a key role in raising a slush fund to support politicians during the 2002 presidential election.

The deepening probe caused Hyundai Motor to delay issuing its first-quarter earnings this week, and it has also postponed U.S. production of its flagship Santa Fe sport utility vehicle.

Kia, which has put back a ground-breaking ceremony at its first U.S. plant in Georgia, reported on Friday its quarterly operating profit more than doubled, but its results fell short of analysts' estimates as a strong won dented overseas earnings.

Hyundai, whose name in Korean means modern, became the world's number seven car maker in just four decades and was instrumental in the rebuilding of the economy after the 1950-1953 Korean War.

But along with other chaebol its business practices and ties with politicians have come under increasing scrutiny.

Combined exports by Hyundai Motor and Kia account for nearly 10 percent of total exports in South Korea, Asia's fourth-biggest economy, according to company data.

Standard & Poor's Ratings Services and Moody's Investors Service said this week their ratings on the two firms were unlikely to be threatened at the present time.

Last week, Hyundai apologized and said its chairman's family would donate their stake in car shipping affiliate Glovis, worth $1 billion, to charity.

Prosecutors had said the donation would not alter the course of the investigation, but added the national interest would be kept in mind when recommending any punishments.

Shares in Hyundai Motor, the country's fifth-biggest stock with a market value of about $20 billion, ended down 1.78 percent before the issue of the arrest warrant at 82,900 won, against a main index that fell 2.26 percent. Kia shares fell 1.02 percent to 19,400 won.

The shares have lost 4.7 percent over the past two days.

Chung Mong-koo is the eldest surviving son of the late Chung Ju-yung, who founded the Hyundai Group in 1947 and Hyundai Motor in 1967. The 68-year-old took control of Hyundai Motor in 1999 from his uncle Chung Se-yung, who is credited with Hyundai's rapid growth and was nicknamed Pony Chung after its first model.

Hyundai officials say their current chairman is a micromanager who holds a meeting at 6:30 a.m. with executives every morning and is heavily involved in most decisions.

South Korea