By Kim Hyun-bin
Hanwha Group is becoming unnerved over the intensifying fraud allegations being made against Nikola Corp. If the accusations are found to be true, it will create not just a hefty loss for the conglomerate, but possibly hinder the future managerial succession process from Chairman Kim Seung-youn to one of his three sons.
The U.S. Department of Justice started a fraud investigation last week, joined earlier this week by the Securities and Exchange Commission (SEC) starting its own probe, leading to Trevor Milton, the founder and CEO of the company, to resign. Hanwha invested $100 million into the U.S. hydrogen truck maker through its affiliates Hanwha General Chemical (HGC) and Hanwha Energy.
Hanwha Energy is fully owned by H-Solution, which is owned by the owner's three sons. Hanwha Energy invested $50 million in 2018 and another $50 million was invested through HGC, to obtain a 6.13 percent in Nikola making the Korean firm the seventh-largest shareholder. Excluding the founder Trevor Milton and Nikola management, Hanwha is the fifth-largest shareholder.
Hanwha Energy also owns 39.2 percent of Hanwha General Chemical, which means if Nikola is deemed a fraudulent enterprise, the three brothers will be the most affected by their poor investment choice.
The investment was led by Hanwha Solutions Vice President Kim Dong-kwan, the eldest son of Hanwha Group Chairman Kim Seung-youn. Many praised the junior Kim as an exemplary investor finding a potential jackpot at the time, as Nikola's value jumped sevenfold as soon as it was listed on the Nasdaq, June 4.
However, the Nikola hype has been short-lived after the Sept. 10 release of a short seller report, alleging the electric truck maker misrepresented its technology.
If fraud is by the U.S. electric truck maker is confirmed, it will cause significant losses ― Nikola could be delisted and Hanwha could lose its entire investment. In that case, it may inevitably reduce the value of Hanwha Solutions and could create an unfavorable structure for the conglomerate's hereditary managerial succession. Plus, the Nikola controversy is likely to have a negative impact on HGC's IPO.
HGC is scheduled to go public by April 2021 and Nikola's case could become a major barrier for potential investors.
In 2015, Hanwha Group signed a big deal with Samsung Group and agreed to list HGC by April 2022. Samsung Group holds 24.1 percent of HGC with a put option, which gives the powerful conglomerate the choice to resell the shares if the agreement is not met by the stated date.
If HGC's value is lowered it will also reduce Hanwha Solutions' value, reducing the three Kim brothers' chances of raising its valuation before the anticipated managerial succession at the conglomerate.
In the medium to long term, Hanwha Group's planned hydrogen business models through Nikola are also likely to face major setbacks, according to some observers. Hanwha was expected to enter the U.S. hydrogen market with the commercialization of Nikola's hydrogen trucks that was scheduled for 2023. Hanwha Energy secured a deal with Nikola to build solar energy generators to power its hydrogen fueling stations around the U.S., while Hanwha General Chemical was to obtain the operation rights for the fueling stations. But all these plans are now on the verge of collapse.
"We are looking closely into the investigation process by the U.S. SEC and justice department," a Hanwha Group official said. "We have no further comments to make regarding the issue at this point."
Hanwha Group is becoming unnerved over the intensifying fraud allegations being made against Nikola Corp. If the accusations are found to be true, it will create not just a hefty loss for the conglomerate, but possibly hinder the future managerial succession process from Chairman Kim Seung-youn to one of his three sons.
The U.S. Department of Justice started a fraud investigation last week, joined earlier this week by the Securities and Exchange Commission (SEC) starting its own probe, leading to Trevor Milton, the founder and CEO of the company, to resign. Hanwha invested $100 million into the U.S. hydrogen truck maker through its affiliates Hanwha General Chemical (HGC) and Hanwha Energy.
Hanwha Energy is fully owned by H-Solution, which is owned by the owner's three sons. Hanwha Energy invested $50 million in 2018 and another $50 million was invested through HGC, to obtain a 6.13 percent in Nikola making the Korean firm the seventh-largest shareholder. Excluding the founder Trevor Milton and Nikola management, Hanwha is the fifth-largest shareholder.
Hanwha Energy also owns 39.2 percent of Hanwha General Chemical, which means if Nikola is deemed a fraudulent enterprise, the three brothers will be the most affected by their poor investment choice.
The investment was led by Hanwha Solutions Vice President Kim Dong-kwan, the eldest son of Hanwha Group Chairman Kim Seung-youn. Many praised the junior Kim as an exemplary investor finding a potential jackpot at the time, as Nikola's value jumped sevenfold as soon as it was listed on the Nasdaq, June 4.
However, the Nikola hype has been short-lived after the Sept. 10 release of a short seller report, alleging the electric truck maker misrepresented its technology.
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| Hanwha Solutions VP Kim Dong-kwan |
HGC is scheduled to go public by April 2021 and Nikola's case could become a major barrier for potential investors.
In 2015, Hanwha Group signed a big deal with Samsung Group and agreed to list HGC by April 2022. Samsung Group holds 24.1 percent of HGC with a put option, which gives the powerful conglomerate the choice to resell the shares if the agreement is not met by the stated date.
If HGC's value is lowered it will also reduce Hanwha Solutions' value, reducing the three Kim brothers' chances of raising its valuation before the anticipated managerial succession at the conglomerate.
In the medium to long term, Hanwha Group's planned hydrogen business models through Nikola are also likely to face major setbacks, according to some observers. Hanwha was expected to enter the U.S. hydrogen market with the commercialization of Nikola's hydrogen trucks that was scheduled for 2023. Hanwha Energy secured a deal with Nikola to build solar energy generators to power its hydrogen fueling stations around the U.S., while Hanwha General Chemical was to obtain the operation rights for the fueling stations. But all these plans are now on the verge of collapse.
"We are looking closely into the investigation process by the U.S. SEC and justice department," a Hanwha Group official said. "We have no further comments to make regarding the issue at this point."
