Another stricken shipbuilder
Hyundai Heavy Industries’ (HHI) shipyard in Ulsan / Courtesy of HHI
Hyundai Heavy Industries’ destiny lies with Oilbank IPO
By Park Hyong-ki
Hyundai Heavy Industries (HHI) took a heavy blow as investors rushed to sell their shares of the shipbuilder after the company announced its fundraising plans.
Its shares nosedived nearly 30 percent a day after HHI said it will seek to raise 1.25 trillion won via a stake sale to investors and shareholders, including to Hyundai Robotics, next year.
Analysts said it will only be a matter of time before its shares hit a record low, the same as Samsung Heavy Industries, the shares of which are sliding toward 6,900 won as it, too, seeks to raise money from shareholders, including Samsung Electronics.
Like Samsung and Daewoo Shipbuilding & Marine Engineering, HHI needs the capital to improve its finances amid a shipbuilding slowdown.
Without it, the analysts note that HHI could see its credit rating drop, which could further deal a severe blow to the company.
Korea’s largest shipbuilder is expected to face an earnings shock in the fourth quarter, with operating losses reaching about 370 billion won.
Its survival will depend on capital provided by Hyundai Robotics, HHI’s biggest shareholder, and its cash reserves to pay back its debt as well as the debts of its affiliates so it can weather the storm ahead.
Hyundai Robotics has assets that can immediately be converted to cash worth 7 trillion won, while HHI has 2.5 trillion won in cash, according to their financial statements and analysts.
About 40 percent of HHI’s 1.25 trillion won fundraising will be set aside for research and development.
Hyundai Robotics, an industrial robot manufacturer whose biggest shareholder is Chung Mong-joon, said it will chip in to buy around 3.34 million common shares of HHI in the fundraising by March next year.
But to spend that much money on the company, Hyundai Robotics will need money.
This is where Hyundai Oilbank comes in to provide fresh capital for Hyundai Robotics to make up for the money it will inject into HHI.
Hyundai Robotics plans to launch an initial public offering (IPO) of Hyundai Oilbank next year. Some of the proceeds from its IPO will be set aside for Hyundai Robotics’ future mergers and acquisitions.
“All these will come down to whether Oilbank can successfully debut on the exchange,” said Lee Sang-woo, an analyst at Eugene Investment & Securities.
Along with HHI’s fundraising, Hyundai Oilbank’s IPO funds are expected to be used to further clean up and streamline the complex web of cross-shareholdings of the shipbuilding chaebol.
Hyundai Robotics has a 91 percent stake in Hyundai Oilbank, the country’s third-biggest oil refiner and service station operator.
Analysts forecast Hyundai Oilbank’s IPO could be worth as much as 7 trillion won.
In contrast to HHI, the oil refiner had a good year in 2017. Its full-year operating profit is expected to reach about 1.2 trillion won.
HHI’s 52-week high was 187,500 won per share. It is currently trading toward 9,600 won.