Benefits from Split-up
Hyundai Heavy Industries is seeking to enhance its value by pursuing a corporate split-up. Its plan is to lay the foundation for individual companies’ developing their specialties and competing in the world market by dividing different businesses in one body into four companies.
Earlier in November last year, Hyundai Heavy Industries announced that it would split up its existing business into six categories -- shipbuilding, offshore plants and engines; electric, electronics; construction equipment; green energy; and robots.
As the result of the split-off, the current Hyundai Heavy Industries will only engage in shipbuilding, offshore plants and engines, Hyundai Electric & Energy System (tentative named) will be responsible for electric and electronics, Hyundai Construction Machinery (tentative named) will focus on construction machinery, and Hyundai Robotics (tentative named) will specialize in robots and oil refinery. The service and green energy businesses were reborn as Hyundai Global Service and Hyundai Heavy Industries Green Energy, respectively, in December last year.
The split-up of Hyundai Heavy Industries took place on March 3 amid the approval of institutional investors including the National Pension Service and foreign investors. The split-up plan introduced at the general shareholders' meeting of Hyundai Heavy Industries, which was held on March 27, was approved with votes of 386.67 million shares which were about 98 percent of the participants’ 3.945 million shares with voting rights. The overwhelming approval rate is attributable to the fact that major pension funds and institutional investors, including the National Pension Service which is the second largest shareholder with an 8% stake, and foreign shareholders with a 15% stake.
The labor union of Hyundai Heavy Industries and local government expressed its opposition to the split-up in the run-up to the extraordinary shareholders' meeting, but investors predicted that it would be possible to improve financial structure and eliminate circular shareholding by dividing the company. The Institutional Shareholder Services (ISS), the world's largest advisory group on voting rights, also expressed a positive opinion on the division of the business, saying, "The division of the business will eliminate the current circular shareholding and thus enhance the transparency of the governance structure. “It is expected that the split-up of Hyundai Heavy Industries will elevate the value of individual companies," said Seong Ki-jong, a researcher at Mirae Asset Daewoo, raising its target price to 200,000 won.
If the division of Hyundai Heavy Industries is completed, the debt-to-equity ratio is expected to drop to less than 100%. The company also expressed its vision to take off again based on the highly profitable and cash-cow engine business. "We think that institutional investors and foreign investors have appreciated highly the future value of Hyundai Heavy Industries after the split-up," said a representative of Hyundai Heavy Industries. "As the company gained full trust from the market, we will work hard to enhance our shareholder value by enhancing our competitiveness to become a world-class company."
Hyundai Heavy Industries has been intensively streamlining management since the second half of 2014. The company put forth preemptive and robust self-reliance efforts and improved its business performances. Last year, its operating profits surpassed 1 trillion won (US$850 million) in four years, making the company stand out in the struggling shipbuilding industry. The company chalked up sales of 39.317 trillion won (US$33.4 billion) and operating profit of 1.64 trillion won (US$1.39 billion), continuing its surplus for the four quarters of last year.
Hyundai Electric & Energy Systems (tentative named) plans to develop new customers for each market on the strength of increasing demand to come after the easing of US energy regulations, the expansion of markets due to the development of new Asian markets and a recovery of prices of oil in the Middle East. The company also will strengthen its competitiveness in the global market via stronger partnership with EPC companies.
Hyundai Construction Machinery (tentative named) plans to accelerate the expansion of its global sales network by expanding its dealer capacity building program and providing comprehensive solutions through a regional responsibility system. The company's main product, mid- to large-sized excavators, achieved a high sales rate of 7.2% in the world market last year despite the global recession and slowed demand.
Hyundai Robotics (tentative named) moved to Daegu Metropolitan City Technopolis in January this year, has been operated as a state-of-the-art smart factory and plans to double its existing production capacity to 8,000 units annually from the current 4,000. Hyundai Global Service specializes in engineering services such as oil refueling, parts replacement, repair, and remodeling in the offshore plant sector, and will position itself strong in the service engineering sector. Hyundai Heavy Industries Green Energy is producing and selling solar cells and modules. In the long term, the company will secure differentiated competitiveness in cell and module manufacturing capacity, and various revenue sources through cooperation with Korean and overseas solar power generation companies.