Implication of Breaking-off HMM

Much attention is paid to whether Hyundai Elevator can recover the relationship with Swiss-based Schindler Holding AG after breaking off from Hyundai Merchant Marine.
Much attention is paid to whether Hyundai Elevator can recover the relationship with Swiss-based Schindler Holding AG after breaking off from Hyundai Merchant Marine.

 

As Hyundai Elevator, the nation’s leading elevator manufacturer, has decided to break off from its ailing subsidiary Hyundai Merchant Marine (HMM) on the board meeting, all eyes are on whether the company can recover the relationship with Swiss-based Schindler Holding AG, its No. 2 shareholder.

Hyundai Elevator and Schindler had been amicable business partners when the Swiss firm sided with Hyundai Group when it was in managerial disputes with KCC over its elevator unit in 2006. However, Schindler sued Hyundai Elevator for inflicting financial damage by raising capital through another public offering. The capital increase was designed to make up for the losses from derivative contracts to save its affiliate HMM.

According to investment banking (IB) sources on June 9, Hyundai Merchant Marine (HMM) held a board meeting on the 3rd and decided to dilute shares held in the shipping line by its affiliates, in preparation for a debt-for-equity swap with main creditor Korea Development Bank (KDB). The affected shares will be consolidated in a ratio of 7:1, meaning that every seven shares will be merged into one share. The 7:1 capital reduction without refund will be executed for shares held by major shareholders, including Hyundai Elevator and Hyundai Group chairwoman Hyun Jeong-eun. Once the capital reduction and the planned debt-for-equity swap are completed, Hyundai Elevator’s stake in HMM will be dropped from the current 17.5 percent to some 1 percent.

Industry sources expect that Hyundai Elevator will recover the relationship with Schindler again as it severs the link between HMM. This is because Hyundai Elevator will stop providing financial aid to HMM with the latest plan.

Last year, Hyundai Elevator posted 156.5 billion won (US$134.97 million) in operating profits. However, it recorded current net losses of 5 billion won (US$4.31 million) due to the equity method loss as HMM posted 627 billion won (US$540.75 million) in current net losses. An IB industry official said, “Schindler doesn’t raise any objections to the latest plan for HMM, which causes more than 40 billion won (US$34.5 million) of losses from falling book values on Hyundai Elevator. This is because it is better for the company to cut off relations with HMM.”

 

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