Hanwha Sees New Growth in Alternative Energy
By Kim Tong-hyung
Staff Reporter
The Hanwha Group admits that explosives, construction and insurance might not be enough to carry the conglomerate decades down the road.
But Kim Seung-youn, the group's highly assertive chairman, says it will just take three years to transform the company into a globally competent corporate giant, a claim that equally reflects confidence and urgency about a window of opportunity that could be brief.
In a meeting with senior executives last month, Kim rubber-stamped an ambitious rebuilding plan that has Hanwha committing to new businesses such as alternative energy and natural resources development. The group is also cutting the cords on unprofitable operations and consolidating some subsidiaries to reduce the overlap among business divisions.
``This is more than just a plan to overcome the current economic crisis … we need an aggressive mindset that we are building our own tomorrow,'' Kim said during the meeting, announcing ``four innovation themes'' for improvement in business lineup, organizational structure, profit structure and corporate culture.
``No later than by 2011, we need to build ourselves a foundation for Hanwha to step up as a global company. We need to manage to both expand in size and become more efficient and profitable as a company,'' he said.
Hanwha relies on chemicals and explosives for its bread and butter, but has also expanded into securities, insurance, construction, retail and resort industries over the years.
The group posted about 27 trillion won (about $18.3 billion) in revenue last year, with about 15 trillion won coming from financial services.
Despite being one of the country's biggest ``chaebol,'' or family-owned conglomerates, Hanwha's spiraling corporate empire still lacks an identifiable building block for the future, which casts a gloomy outlook on the company's long-term fate.
The renewable energy business, which is to be spearheaded by Hanwha Chemical, is clearly the core of Hanwha's plans to secure new growth engines. The company is already dipping its toes in manufacturing solar cells and now plans to get involved in making polysilicon, a key material in producing solar batteries and operating solar power generators.
Other plans in ``green energy'' include investing to develop new materials for rechargeable batteries and acquiring ``carbon credits,'' a scheme that imposes annual caps on companies for fuel and energy use, and allow those that use less to sell their credits at the prevailing market price.
The company has aspirations for biotechnology, planning to invest in research for next-generation antibodies and therapeutics, and also looks to have a hand in materials science, jumping into the race to develop carbon nanotubes. Stronger investment was also promised for the company's operations in robotics and aircraft manufacturing.
Hanwha sees a potential goldmine in the ``silver industry,'' or business sectors focusing on products and services for seniors, which would allow the company to achieve synergy between its business units in finance, housing, leisure and services.
To finance the new projects and improve profit structure, Hanwha is looking to unload a wealth of its non-operational assets and having some of its unlisted subsidiaries go public.
The company is also expected to be active in mergers and acquisitions, as it looks to expand overseas. Hanwha is involved in energy development in eight countries including Qatar, Yemen and Mexico and also has plans for agricultural and forestry projects in Southeast Asian countries.
``The idea is to use the current economic downturn as a turning point for us to take the next step,'' said Hanwha Vice President Jang Il-hyeong.
``If we successfully complete the `four innovation themes' over the next three years, Hanwha will secure global?level competitiveness both in terms of profitability and growth potential,'' he said.
Rebounding After Daewoo Snub
Hanwha's rebuilding package is boldly ambitious for what is essentially a ``Plan-B.'' The past six months have been an abysmal tie for Hanwha, which began with hopes of securing a breakthrough in its elusive quest for growth, only to have every plan blow up in its face at the last minute.
In what most industry watchers saw as inevitable, Hanwha's bid to acquire a controlling stake in Daewoo Shipbuilding & Marine Engineering, the world's third-largest shipyard, was rejected in January after disputes with the Korea Development Bank over payment terms.
Now, a legal battle is brewing between Hanwha and KDB, with Hanwha looking to get back its 315 billion won deposit it paid after being named Daewoo Marine's preferred bidder last October.
Kim had vowed to rebuild Hanwha's future around Daewoo Marine, claiming that the acquisition of the shipbuilder would allow the group to reach 100 trillion won in revenue by 2017 and generate about 50 percent of its sales from overseas markets.
With the deal falling through, the 55-year-old chairman is burdened to come up with just as bold a plan as he attempts to put the company's rebuilding project back on track, although it bears further watching whether renewable energy could be the ultimate answer.
Whether or not Hanwha gets its money returned, most analysts agree that the Daewoo Marine fallout was a blessing in disguise. It would have crippled Hanwha to come up with the 6.3 trillion won to buy the shipbuilder, they say, when the values of its assets are plummeting and banks are tightening lending amid economic trouble.
Struggling to come up with the money, Hanwha made a last-minute suggestion to buy just 30.37 percent of Daewoo Marine's 50.37 percent stake on sale and for KDB to acquire the remaining 20 percent, which proved to be the deal-breaker for the bank.
``Hanwha's main subsidiaries such as Hanwha Corporation, Hanwha Chemical and Hanwha Constructions borrowed a combined 2.17 trillion won for the Daewoo Marine deal, which was a long shot anyway, so it's good for the group, as its companies will be greatly reduced,'' said Hwang Kyu-won, an analyst from Tongyang Investment and Securities.
``The fallout of the deal, however, does represent a setback in its long-term plans for growth, and now management will have to come up with a new portfolio. Building a successful business network for foreign markets will be a challenge,'' he said.
Hanwha certainly missed a big fish in Daewoo Marine but is hoping to reel in just as a big catch down the road. Through the three-year rebuilding plan, the company is planning to raise around 4 trillion won in cash to get back in the game for major merger and acquisition (M& A) deals.
Hanwha is considering bidding for the initial public offering of Korealife Insurance in Korea and foreign markets sometime around next year. Korealife Insurance's stocks will combine for a value of around 3 trillion won if the company goes public, according to industry estimates.
There is also a possibility that Hanwha will chooses to sell 21 percent of its 67 percent stake in Korealife Insurance to boost its cash reserves. The public stock offering of Hanwha Construction is another idea.
Some of the money will come quickly. Hanwha will get the remaining 500 billion won from its former chemicals experiment site it sold to Siheung City for 560 billion won in 2006.
Hanwha's plans to sell its main building in Sogong-dong, southern Seoul, which is thought to be worth around 600 billion won, and its retail arm, Hanwha Galleria, worth around 1.2 trillion won, were nullified after the Daewoo Marine deal fell through.