HHI Group restructures affiliates

Hyundai Heavy Industries Group has announced a plan to fully transition into a holding company structure involving mergers and stake sales on Wednesday.

The company has been pursuing the transition since 2016 to make its corporate governance structure more transparent. Last year, it started the process by spinning off Hyundai Robotics from Hyundai Heavy Industries to make it the holding company. In March, the robotics arm changed its name to Hyundai Heavy Industries Holdings.

Still, the company needed to resolve a number of issues to make the transition work.

Korean fair trade law prohibits a holding company’s second-tier subsidiary from holding a stake in its third-tier subsidiaries, however Hyundai Heavy Industries Holdings’ second-tier subsidiary Hyundai Samho Heavy Industries holds a 42.3 percent stake in the third-tier subsidiary Hyundai Mipo Dockyard.

To eliminate the third-tier subsidiary structure, the company decided to split Hyundai Samho Heavy Industries into two corporations - a non-operating company dedicated to making investments and a corporation to carry on the shipbuilding business.

Hyundai Heavy Industries, a first-tier subsidiary of the holding company, will merge with the investment corporation of Hyundai Samho Heavy Industries.

This process enables Hyundai Heavy Industries to directly own a stake of Hyundai Mipo Dockyard, which Hyundai Samho Heavy Industries used to control. This also means Hyundai Mipo Dockyards’ status is elevated from a third-tier subsidiary to a second-tier subsidiary of the holding company.

The group plans to finish the split and merger by the end of the year, well within the two-year grace period permitted by fair trade laws.

The group is also breaking its cross-shareholding structure. Previously, third-tier subsidiary Hyundai Mipo Dockyard owned a 3.9 percent stake in Hyundai Heavy Industries. To break the chain, Hyundai Heavy Industries Holdings purchased the 3.9 percent stake in the shipbuilder at 318.3 billion won ($283.7 million) on Wednesday.

“We have essentially eliminated uncertainties related to reforming the group’s corporate governance structure,” the group said in statement.

Market analysts assessed that Hyundai Heavy’s moves will have a positive impact on both the holding company and its subsidiaries.

“It was a desirable structural reform,” said Yoo Seung-woo, an analyst for SK Securities. “The decision did not send shockwaves through the stock market.”

An analyst from Daishin Securities also said the plan lets Hyundai Heavy’s holding company abide by local fair trade laws and increase its control over Hyundai Heavy Industries through a stock purchase.

BY KIM JEE-HEE [kim.jeehee@joongang.co.kr]