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Hyundai Heavy share issue raises furor

Analysts believe move is a reflection of poor industry prospects
Dec 28,2017
Hyundai Heavy Industries’ decision to raise 1.3 trillion won ($1.2 billion) through a share issue affected the stock value of the shipbuilder and its affiliates Wednesday as investors perceived the announcement as a sign of tough industry prospects next year and expressed concern about stock dilution.

The stock value of Hyundai Heavy Industries, Korea’s largest shipbuilder, fell 28.75 percent on Wednesday to 96,900 won. The company tried to assuage investor concerns late Tuesday with an explanation that the share issue was aimed at beefing up capital soundness by paying down debts.

Analysts, though, revised down target prices of the company. A share issue typically drags down investor sentiment due to the subsequent discount on share prices that translates into low valuation per share.

“The size of the deal seems excessive and bound to hit investment sentiment,” said Han Young-soo, an analyst at Samsung Securities. “The proceeds from the rights offering will be used to help widen the gap it has with domestic rivals - ahead of an anticipated industry upturn next year - and to repay debt.

“Nonetheless,” he continued, “we see the planned rights offering as excessively large and forecast 18.1 percent dilution from the planned rights issuance, the size of which is bound to bring additional negatives.”

Hyundai Heavy said the move could alleviate debt held by the company and its two affiliates Hyundai Samho Heavy and Hyundai Mipo Dockyard and bring about 500 billion won in net cash. It will also likely reduce the shipbuilder’s debt-to-equity ratio to the 60 percent range from 87 percent. The move is in line with other affiliates’ push to raise capital.

Hyundai Robotics, the holding company of Hyundai Heavy Industries Group, decided to take its oil refining subsidiary, Hyundai Oilbank, public earlier this week with the aim of strengthening its financial stability and generating cash for investment in new businesses.

Hyundai Robotics is the largest shareholder of Hyundai Oilbank, with 91.1 percent ownership. Under a planned process by the group, Hyundai Oilbank will be listed in the local stock market by the second half of next year. But the affiliates experienced losses, hurt by the shipbuilder’s plan.

Hyundai Robotics closed at 360,500 won, down 3.74 percent from the previous trading day while Hyundai Mipo dipped 16.18 percent to 777,000 won.

Analysts said that the affiliate-wide endeavor for better cash flow is sending investors a warning sign that next year’s industry landscape will not be a good one. Hyundai Heavy Industries expects its 2018 sales to be 15.18 trillion won, down 11 percent from this year’s 17 trillion as some analysts project no significant improvement in orders. Worse, banks are expected to tighten lending standards next year.

“Hyundai Heavy turned to the rights issue even though it could realize year-end capital gains worth 443 billion won from the sale of land to Hyundai Mipo Dockyard,” said Lee Sang-woo of Eugene Investment & Securities. “This indicates the decision stems from concern that the downturn in shipbuilding could last for some time.”

BY PARK EUN-JEE [park.eunjee@joongang.co.kr]