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HHI spinoffs debut on the Kospi

Shipbuilder has shed businesses unrelated to vessel manufacturing
May 11,2017
Hyundai Heavy Industries relisted on the Korean stock exchange Wednesday along with three spinoff companies that used to be under its wing, another step in the shipbuilder’s plan to transform into a holding company structure.

HHI has long engaged in many business sectors outside shipbuilding, including heavy mechanics and robotics. In November, the company first announced plans to spin off the non-shipbuilding sectors into independent enterprises to improve governance.

“The restructuring of our business is aimed at reducing the inefficiency caused by managing organizations from different fields under one wing and enhance competence in their respective markets,” the company said in mid-March during an investor relations meeting.

Before, HHI’s decision-making process and management were centered in its shipbuilding sector, the company’s biggest source of revenue. For non-shipbuilding sectors, this made it difficult for them to respond quickly to market-specific trends.

The three spinoffs that newly went public on Wednesday are Hyundai Electric & Energy Systems, Hyundai Construction Equipment and Hyundai Robotics. HHI had suspended its operations on the country’s main index, the Kospi, on March 30 to prepare for the split and relist with the three new companies.

Hyundai Robotics, a manufacturer of industrial robots and automation equipment, will function as the holding company of the other three, with a 13.4 percent stake in each company. It also acquired 91.1 percent of lucrative Hyundai Oilbank from HHI.

Hyundai Electric & Energy Systems manufactures electric power devices for industrial and marine use. It started out as a small division inside HHI in 1977 and grew to rake in 2.2 trillion won ($1.9 billion) in sales last year.

Hyundai Construction Equipment produces industrial machinery and vehicles. The company, which was initially a business division, made 1.9 trillion won in sales last year.

Combined, all HHI units generated sales of 14.9 trillion won last year.

With its non-shipping businesses spun off, HHI will now solely focus on manufacturing ships, marine plants and engines.

HHI said it is hopes to finalize the restructuring process by October. Apart from the four listed on Wednesday, the other two are HHI Industries Green Energy focused on renewable sources and Hyundai Global Service, a provider of ship repair and maintenance. HHI Industries Green Energy will be a subsidiary of HHI, while Hyundai Global Service will fall under holding company Hyundai Robotics.

Analyst reports on the spinoffs Wednesday were generally upbeat.

Lee Sang-woo of Eugene Investment & Securities suggested “buy” for all four companies that listed that day. “The combined market capitalization of the four companies is forecast to reach 16.5 trillion won, a 31.7 percent rise compared to HHI’s current market cap at 12.5 trillion won,” he said.

Lee Bong-jin, an analyst at Hanwha & Investment Securities, advised “hold,” saying HHI’s shortened business portfolio may make it more vulnerable in the global shipbuilding market.

HHI’s shares jumped 14.97 percent to 180,500 won on Seoul’s main bourse on Wednesday. The prices of the three newly listed companies, though, fell on their first day. Hyundai Robotics dropped 5.22 percent to 390,000 won, Hyundai Electric & Energy Systems 8.5 percent to 280,000 won and Hyundai Construction Equipment fell 4.38 percent to 240,000 won.


BY SONG KYOUNG-SON [song.kyoungson@joongang.co.kr]