The Hyosung Group is moving toward adopting a holding company structure. Although the third-generation management system was established in January of this year as CEO and the heir Cho Hyun-joon took office as chairman, the group needed to restructure its corporate governance system and judged that its business divisions have to secure their independence. Hyosung’s transition into a holding company structure is expected to use a spin-off method to separate operating companies with Hyosung Corp at the center.
According to the securities industry and Hyosung Group on September 4, the Hyosung Group will hold board of directors meetings of major subsidiaries such as Hyosung Corp before long and will decide to launch a holding company Hyosung Holdings (tentative name) and execute spin-offs. The exact time has not been confirmed yet, but the Hyosung Group will finish all preparations at least before September 7.
The Hyosung Group’s conversion into a holding company structure is expected to follow a method through which Hyosung Corp that has been acting as a holding company will be spun off into an operating company and a holding company (Hyosung Holdings).
If the spun-off is successfully completed, the owner family including chairman Cho, will be able to increase their stake in Hyosung Holdings by exchanging their equities in other affiliates with new shares of Hyosung Holdings.
It is also being considered that Hyosung ITX, a rapidly growing IT affiliate and Galaxia Communications, an electronic payment specialist, will be merged into the holding company. However, there is a big possibility that the time will be delayed to the end of the year or next year because policies related to this are not confirmed yet.
The reason why Hyosung is rushing to switch to the holding company structure is complex. First of all, the Hyosung Group’s opaque governance structure involving the owner family has been to blame. On top of that, the rapid expansion of the group has made it difficult for the group to manage each of business divisions by way of Hyosung Corp. The company has seven business divisions: textile, industrial materials, chemicals, heavy industry, construction, trade, finance and others.
Its sales in the first half of the year can be broken down into 1.223 trillion won (US $1.10 billion) in the industrial material sector, 1.108 trillion won (US$1.06 billion) in the trade sector, 1.33 trillion won (US$1.19 billion) in the heavy industry sector, 1.08 trillion won (US$970 million) in the textile sector, 727.7 billion won (US$654.9 million) in the chemical industry sector, 508 billion won (US$457.2 million) in the construction sector and 362.7 billion won (US$326.4 million) in finance and other sectors. If the expansion of overseas plants such as China and Vietnam is completed, Hyosung Corp’s scale will further grow, creating need to spin off them as subsidiaries.
Another reason is that the Hyosung Group believes that if the Hyosung Group converts into a holding company structure, its corporate value will balloon. "If Hyosung Corp executes spin-offs, the value of its business division will be more highly evaluated than it is now," said a researcher at Kiwoom Securities. "The stock price of Hyosung Corp may rise about 50% from the current price." It is pointed out that Hyosung ITX and Galaxia Communications in which chairman Cho owns 35.26% and 33.88% equities in, respectively, are expected to enjoy benefits.