HHI aims to boost competitiveness of spin-offs

After being given the green light to spin off its non-shipbuilding businesses at a shareholders’ meeting on Feb. 27, Hyundai Heavy Industries and the newly formed affiliates are now focusing on boosting their businesses ahead of a fresh start next month, the company said Wednesday. 

Despite concerns that were initially raised by the labor union and local community of Ulsan, where HHI is based, the spin-off plan was supported by 386.67 million votes, 98 percent of the participants’ 3.94 million shares with voting rights. It was backed by the National Pension Service with an 8 percent stake and foreign investors with a 15 percent stake.

Under the plan, the current shipbuilding, offshore and engineering, and engine and machinery division will form the new Hyundai Heavy Industries, while the existing non-shipbuilding divisions of Electro Electric Systems; Construction Equipment and Robotics; Green Energy Division; and Integrated AS unit will be separated into business entities tentatively named Hyundai Electric & Energy Systems; Hyundai Construction Equipment; Hyundai Robotics; Hyundai Heavy Industries Green Energy; and Hyundai Global Service, respectively.

Market watchers say that the spin-off will reduce inefficiency and sharpen core competitiveness.

Kang Hwan-goo, the president and CEO of HHI said in a letter to employees last week, “The spin-off decision was made to maximize the potential of each company and shareholder value. With the passage of the plan, we will make utmost efforts to foster each company as the most competitive player in its respective sector.”

The combined valuation of the four new entities is expected to reach 14.5 trillion won ($12.6 billion), about 20 percent higher than HHI before the spin-off, according to Lee Jae-won, an analyst at Yuanta Securities.

Investors also reacted to the decision positively. After the spinoff was approved at the shareholders’ meeting, the company’s stock price rose almost 10 percent until Tuesday.

In accordance with the spin-off plan, which was decided in November at a board of directors meeting, HHI had already separated its green energy division and service unit into Hyundai Heavy Industries Green Energy and Hyundai Global Service in December last year.

On April 1, the four new companies -- HHI, Hyundai Robotics, Hyundai Construction Equipment and Hyundai Electric & Energy Systems -- will be formally launched. Trading of HHI shares will be suspended from March 30 through May 9 and shares of the new HHI and the three new companies will commence on May 10.

An official at HHI said that the company has been placing an emphasis on the disposal of noncore assets and businesses as part of management rationalization measures and self-rescue measures.

In the past months, the company has been selling or liquidating non-performing units -- including Hyundai Cummins, Jake and Hyundai Avancis -- and the disaffiliation of Hyundai Corp., Hyundai Finance Corp. and Hyundai Venture Investment Corp.

With the establishment of the new entities, it will now shift its focus to fostering each company as the most competitive player in its respective sector, said the company’s CEO.

As part of such efforts, HHI said it is seeking a new growth engine by cooperating with global companies such as Saudi Arabia’s Aramco and Saudi Electricity Company, Russian oil firm Rosneft, Demark’s MAN Diesel & Turbo and GE of the US.

The company recorded sales of 39.3 trillion won ($34.25 billion) and an operating profit of 1.64 trillion won last year after logging four straight quarters of surplus. 

By Park Ga-young (gypark@heraldcorp.com)