Hyundai Heavy Industries (HHI) Business Group has come up with a plan to improve its corporate governance structure, calling for the initial public offering of Hyundai Oilbank and disposing of its circular cross-shareholding stakes, among others.
The business group plans to increase capital by issuing new stocks worth 1.3 trillion won by March to overcome its sagging shipbuilding business. HHI said the restructuring of its corporate governance and business portfolio, which started in the second half of 2014, is now approaching the final stage.
The improvement in the group’s financial conditions through an IPO and capital increase is designed to tide over a dearth of ship orders and seize an opportunity to land orders when the shipbuilding industry picks up in 2019.
In a statement, the HHI group said it decided to list Hyundai Oilbank to raise money to ramp up the financial soundness of the group’s holding company, Hyundai Robotics, and invest in its new businesses. Hyundai Robotics is the largest shareholder of Hyundai Oilbank, with a 91 percent stake. The selection of a lead manager for the Hyundai Oilbank IPO and other procedures will be carried out in order to list the refinery company in the second half of 2018.
The capitalization of Hyundai Oilbank is estimated at 7 trillion won, securities companies said. In 2016, Hyundai Oilbank posted 11.885 trillion won in sales and 965.7 billion won in operating profit. The refinery company is predicted to log the best-ever business performance this year.
The business group plans to sell Hyundai Mipo Dockyard’s 4.8 percent stake in Hyundai Heavy Industries (HHI) to dispose of its circular cross-sharing structure. In April, HHI Group restructured its corporate governance, making Hyundai Robotics the holding company of the business group.
HHI Group owner and Asan Foundation Chairman Chung Mong-joon became the largest shareholder of Hyundai Robotics, which have subsidiaries, including Hyundai Heavy Industries, Hyundai Construction Equipment, Hyundai Electric and Hyundai Oilbank. Hyundai Mipo Dockyard’s disposing of its stake in Hyundai Heavy Industries (HHI) is to put an end to the business group’s circular cross-sharing structure, thus improving the transparency of its corporate governance.
HHI plans to issue 12.5 million shares worth 1,287.5 billion won. Out of the total raised, something between 700 billion won and 800 billion won will be used to repay debts, while the remainder will be made available for investments into the R&D sector. Hyundai Robotics plans to acquire all forfeited stock of the capital increase. If HHI repays additional debts, the shipbuilding will see its debt ratio drop from the current 87 percent to about 60 percent.
The business group’s management improvement plan is coming to finish. HHI Group raised about 3.5 billion more than its original self-rescue plan through the disposing of HI Investment and Securities and other assets.
HHI chalked up about 350 billion won in operating profit in the nine months of this year, but the figure is predicted to dwindle to about 46.9 billion won since shipbuilding is forecast to incur 300 billion won in operating losses in the fourth quarter of the year.
The operating losses, the first in eight quarters, was attributable to the final statement accounting for ship orders landed with lower prices in 2016. In 2018, HHI is predicted to log operating losses annually. The shipbuilder is forecast to post 13.6 trillion won in sales in 2018, 10 percent lower than this year’s 15.376 trillion won. But HHI and two shipbuilding subsidiaries won orders worth $10 billion to building 150 vessels so far this year, surpassing its annual target of $7.5 billion.
HHI Group aims to land orders worth $13.2 billion next year, a 30 percent surge over this year. “The global shipbuilding industry is still unstable with repercussions, caused by restructuring, but there is a stronger trend the placing of shipbuilding orders heavily hinges on the consideration of shipbuilders’ financial conditions,” an HHI official said. With a lower debt ratio, HHI will likely to take more opportunities to land orders, he added.
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