KoreaToday Hyundai Group gears up to acquire Hyundai E&C

By Kang Seung-woo

Hyundai Group is again rolling up its sleeves in an attempt to take over Hyundai Engineering and Construction (HE&C), after it won a legal dispute with its creditors’ group over the extension of its debt rescheduling program.

The victory has paved the way for the group to brush up on its strategy and join a bidding war on a better footing against Hyundai-Kia Automotive Group to acquire the nation’s largest construction company. Industry watchers are expecting the final price tag for the construction company to be between 3 and 4 trillion won ($2.62 billion to $3.47 billion).

“Hyundai Merchant Marine, the group’s key flagship, has been affected negatively in the global market after the creditors’ sanctions, but we will be able to fix our damaged reputation thanks to the ruling,” a Hyundai Group official said.

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“More than anything else, we have gained momentum in our bid to acquire HE&C given that the group has resolved a few problems with the ruling, such as the creditor banks’ move to freeze new loans to us. This decision will play a positive role in the bidding process.”

In July, creditors decided not to roll over the group’s maturing loans and to supply new funding after the group refused to accept their demand to sign a restructuring agreement due to mounting debts resulting from Hyundai Merchant Marine’s heavy losses in 2009.

The group claimed that following the creditors’ demand would limit its access to capital needed to take over HE&C.

Against that backdrop, Hyundai, which attempted to replace KEB as its main creditor, filed for an injunction asking the court to invalidate the sanctions, claiming KEB’s financial appraisal was inaccurate and the shipping firm is generating a record-high profit this year.

The Seoul Central District Court accepted the conglomerate’s request to nullify financial sanctions imposed on its 10 affiliates by creditor banks, saying the sanctions were “excessive” and had no legal grounds.

Economists said the decision is expected to lend support to the group’s push to acquire the builder.

“Hyundai has gained steam via the judgment in the auction,” said Daniel Song, a senior analyst at Daewoo Securities.

“Now, it can raise more capital and air out a commercial on television. If Hyundai remained under sanctions, it would still be in trouble.”

For Hyundai Group, HE&C is more than what meets the eye because the country’s leading builder was the foundation of the former Hyundai Group’s success.

In its attempt to remind the public of its past relationship with the constructor, Hyundai Group is relying on sentiment in its campaign through a recently launched TV commercial.

The commercial features black-and-white photos of the late Chung Ju-yung, the founder of the group, and Chung Mong-hun, the former chairman and late husband of Chairwoman Hyun Jeong-eun, to connect the potential takeover with becoming the legitimate successor of the founder; ending with the message that Hyundai Group will defend the construction firm.

“Chung Mong-hun succeeded Chung Ju-yung at the helm and he tried his best in rescuing the construction company in financial difficulty,” another manager at Hyundai Group said.

The chairman used 440 billion won of his own money to save the firm in 2000.

“The commercial is a good indicator of how serious the group is in its attempt to get the construction company back.”

The bidding war, which is expected to be a battle between two major corporations bearing the Hyundai name, started last week, when creditor banks of the builder ― Korea Finance Corporation, Woori Bank and KEB ― officially put the much-coveted firm on sale to dispose of their 34.88 percent stake, or 38.87 million shares.

The creditors will receive letters of intent from the bidders through Oct. 1 and the preferred bidder will be named by the end of the year, according to the creditors.

HE&C, set up in 1947, is the oldest builder in Korea and maintains the billing as the nation’s top builder with its annual orders amounting to trillions of won.

The constructor became the first player in the industry to report more than 9 trillion won in revenue last year, after chalking up 9.28 trillion won in sales and reaching 446.6 billion won in net profit.

But the company has been under creditor control after they acquired a 35 percent stake through a debt-for-equity swap in 2001, when the builder was suffering from a liquidity crunch.

They have been searching for a new owner for the construction firm since April 2006 when it ended a creditor-led debt workout program, but there has been little progress until recently due to the global financial crisis in late 2008.

Hyundai Group, one of the nation’s leading industrial companies, is composed of Hyundai Merchant Marine, Hyundai Securities, Hyundai Asan, Hyundai Logem, Hyundai Elevator and Hyundai Ubiquitous and Information Technology. Its business portfolio extends to fields including inter-Korean affairs, logistics and finance.

That is why Hyun and the group claim that they will be able to have a significant upside for its diverse businesses from the acquisition of Hyundai E&C.

In addition, the takeover will help the group further diversify its business portfolio, which is solely focused on Hyundai Merchant Marine, its key cash cow.

Meanwhile, the bidding war over HE&C will be fierce after the Hyundai-Kia Automotive Group, whose flagship unit is the country’s No. 1 vehicle producer Hyundai Motor, announced Monday that it will bid for a controlling stake in the company.