Hyundai Group to sell finance arms to raise cash

Hyundai Group, the nation’s 20th-largest conglomerate, announced a plan to raise more than 3.3 trillion won ($3.1 billion) by selling its financial companies and other assets to improve its fiscal health and solve a liquidity crisis caused by slumping core affiliate Hyundai Merchant Marine (HMM).

“We have enough cash until the first half of 2014, but to wipe out people’s concern we have prepared a pre-emptive, voluntary, highly intensive structuring plan,” the group said in a release. “Hyundai Group has considered over and over whether to sell financial affiliates, but to solve the liquidity crisis and regain the trust of the market, we have made a final decision.”

Hyundai Group first said it will sell Hyundai Securities, Hyundai Asset Management and Hyundai Savings Bank and expects to raise 700 billion won to 1 trillion won.

In addition, Hyundai Group said it will sell some stakes of HMM’s port terminal business and restructure its bulk carrier business to bring in 1.5 trillion won.

HMM, the nation’s second-largest shipper, also will sell some of its ships and properties at home and abroad to raise 480 billion won. The properties to be sold include the Yongdong Dockyard in Busan and real estate in the United States, China and Singapore.

The conglomerate also will conduct internal business restructuring of affiliates, including HMM and Hyundai Asan, which manages business with North Korea. In addition to increasing the profitability and efficiency of affiliates, Hyundai Group also will sell the Banyan Tree Club and Spa in central Seoul to raise 340 billion won.

Besides restricting and selling assets, the group also will push its efforts to attract third-party investment. Hyundai Group said it plans to increase capital by issuing new stock for Hyundai Elevator, an initial public offering for Hyundai Logistics and foreign investment in HMM. The group expects this to yield at least 320 billion won.

According to Hyundai Group, sales of financial companies will be processed after setting up a special purpose company (SPC). After transferring assets of its financial affiliates to the SPC, details of the sales will be confirmed following negotiations with its main creditor, Korea Development Bank, and other creditors, Hyundai Group said.

If all of its financial restructuring goes according to plan, Hyundai Group said it will be able to pay 1.3 trillion won worth of debt, which would drop the combined debt ratio of HMM, Hyundai Elevator and Hyundai Logistics from 493 percent to about 200 percent, and raise 2 trillion won in liquidity.

Industry insiders said although the group has more than 500 billion won on hand and successfully returned debts from corporate bonds this month, its financial situation is worsening.

HMM’s loans in the first half totaled more than 6.6 trillion won as its debt-to-equity ratio surged to 895 percent, while its credit ratings have plunged from A- to BBB+. The company hasn’t been in the black for the past two years.

Following HMM’s slump, the financial health of Hyundai Elevator, the largest shareholder of HMM and considered to be a de facto holding company for Hyundai Group, also worsened.

Hyundai Elevator in 2006 signed a derivative product deal with several securities firms to protect the group’s ownership. These security companies bought HMM’s stock, and if the stock price falls below the original price, Hyundai Elevator promised to make up the difference.

Hyundai Elevator’s estimated loss from the derivative deal is 450 billion won. The nation’s top elevator manufacturer’s operating profit was about 70 billion won through the third quarter.

In addition to a worsening business situation, the group also needs to pay 420 billion won in corporate bonds and 400 billion won in commercial paper that expire in the middle of next year.

HMM has been trying to enhance profitability. The company said through the G6 Alliance, which is a coalition of global shippers, it has adjusted cargo volume and service, while reducing charter cost. It also adopted slow steaming to cut fuel costs. HMM also said it signed a deal with a global consulting firm in October to adjust its business structure and cut costs.

Hyundai said that after selling its financial business, the group’s business portfolio will be focused on four sectors: shipping (HMM), logistics (Hyundai Logistics), machinery, (Hyundai Elevator) and inter-Korea business (Hyundai Asan).

“It is painful to sell the finance unit, which was a core part of the group’s business portfolio, but with the plan, we can solve liquidity problems and focus on a core business that raises possibility of sustainable growth,” Hyundai Group said. “Hyundai will be a more solid company starting from this restructuring.”

BY JOO KYUNG-DON [kjoo@joongang.co.kr]