M&A Led by Korean Government Showing Signs of Acceleration

It has been found that no less than four South Korean companies applied for business reorganization on August 16, the first day of application following the implementation of the Special Act on the Improvement of Corporate Vitality to that end. “If this pace continues, the number is expected to reach 10 to 13 within this year so that our goal can be achieved,” the government explained, adding, “We are planning to expedite the approval procedure so companies planning on business reorganization can benefit from the special act.”

That day alone, four Hanwha Group subsidiaries, including Hanwha Chemical, applied for government-led business reorganization based on the special act. These companies had some talks for the purpose with the government even before the implementation of the act. For example, Hanwha Chemical signed a contract with UNID in May this year to sell its chloro-alkali factory in the Ulsan Petrochemical Complex. Once this contract is selected as a beneficiary of the special act, Hanwha Chemical is allowed to postpone the payment of the corporate tax related to the capital gain for four years and can be given various incentives depending on future R&D projects. Tong Yang Moolsan, an agricultural machinery manufacturer, is likely to submit its application within this week as well in order to be provided with financial assistance with regard to the acquisition of Kukje Machinery from Dongkuk Steel.

According to the government, a number of other companies are also making inquiries and most of their inquiries are about whether they belong to the excess-supply sectors to which the special act is applicable. Financial investment experts are estimating the ratio and number of such sectors at around 30% and 90, typical examples of which include steelmaking, shipbuilding and petrochemical.

The purpose of the special act is to facilitate M&A, share exchange and the like so that normal companies in the excess-supply sectors can reorganize their business before becoming insolvent. In its framework, various regulations related to the Fair Trade Act, commercial and tax laws and so on are relaxed at the same time and tax and financial incentives are provided as well. This act is to remain effective for three years to come.