With deficit, Hyosung subsidiary feels the blues

Hyosung Power & Industrial Systems Performance Group, an affiliate of Hyosung Group, is suffering a triple whammy of aggravating losses, external road blocks and poor leadership.

Hyosung Group announced better-than-expected performances in the second quarter as its chemical and textile units showed higher operating profits than the market predicted. In the end, the power systems unit proved the one weak link.

The chemical unit saw high demand for its PETs in the summer, achieving operating profit of 25.5 billion won ($22.5 million). PETs are often used in synthetic fibers. The textile unit also posted 36.3 billion won in operating profit as the spandex market recovered.

But the power systems subsidiary posted a deficit for the sixth straight quarter. It recorded a 40.1 billion won loss in the period from April to June, almost quadrupling its 12.3 billion won loss in the same year-earlier period, according to the Financial Supervisory Service.

In the first quarter of this year, the company registered a loss of 26 billion won.

The financial industry expects the money-losing unit to get back on track early next year.

As the group’s Chairman Cho Seok-rai’s three sons are now heading up its major subsidiaries, how the units perform are seen as barometers of their ability and a likely gauge of who best-deserves to be next in line for the throne.

Cho’s eldest son Hyun-joon holds the reins to the textile unit, while the third son Hyun-sang heads up a subsidiary specializing in industrial materials.

The three hold similarly sized stakes in the group, with Hyun-joon owning 7.13 percent, Hyun-moon controlling 7.38 percent and Hyun-sang having 7.79 percent.

Hyun-moon, a 43-year-old Harvard Law School graduate, has been absent from work for almost a year, however, which begs the question of whether he has already bowed out of the competition to succeed his father. The unit for which he was responsible performed poorly last year, which reportedly led to him seeking management counseling from the chairman.

Due to poor performances of the business last year, Hyun-moon has reportedly been under guidance of Cho Seok-rai who has repeatedly stressed that the keys to the ivory tower will be handed to the son who proves himself most capable.

Meanwhile, another headache for Hyosung is the antidumping duties imposed on its heavy industry unit by the U.S. Commerce Department regarding its exports of power transformers. Washington said the transformers are being sold in the U.S. at unfairly low prices, leading it to impose duties of 29.04 percent.

“Although the company only exports a small portion of its power transformers to the U.S., this regulation definitely puts the brakes on some of its overseas sales activities,” a Hyosung employee said.

By Song Su-hyun [ssh@joongang.co.kr]