Hanwha Group's restructuring set in motion

Kim Seung-youn

Kim Dong-kwan

By Park Jin-hai

Hanwha Group’s decision to take over four Samsung Group affiliates last month signals a group-wide ownership restructuring, officials and analysts said Friday.

They say that the status of Hanwha S&C, the key player that made the 2 trillion won deal, will rise and play a critical role in the group-wide restructuring.

Hanwha S&C is specialized in providing systems integration and other information technology services.

The most possible scenario is that it will be merged with the Hanwha Corp.

The latter, the de facto holding company of Hanwha Group, is the largest shareholder of its core affiliate Hanwha Chemical (36.7%) and the second biggest shareholder of Hanwha Life Insurance (21.6%).

Hanwha Group Chairman Kim Seung-youn is the largest shareholder of Hanwha Corp. with a 22.6 percent stake. His three sons Dong-kwan, Dong-won and Dong-seon have 4.44, 1.6 and 1.67 percent stakes respectively.

Hanwha S&C, a non-listed IT affiliate, is 100 percent owned by Kim’s three sons. First son Dong-kwan holds a 50 percent stake, and the second and third sons hold 25 percent each.

Eldest son Kim Dong-kwan has been recently promoted to executive director of Hanwha SolarOne.

It merged with Hanwha Energy that posted 400 billion won in sales last year. It will take over Samsung General Chemicals.

This means that Hanwha S&C will be at the top of group restructuring.

The company was split from the group’s information operations in 2001, and recorded 966.4 billion won in sales last year, compared with 83.2 billion in 2001.

Many analysts expect the group will most likely turn Hanwha Corp. into a holding firm and then merge it with Hanwha S&C. They said passing group control to Kim’s three sons will gain momentum after establishing a firmer holding firm structure.

“With the chairman actively leading group projects, I don’t think it will hastily merge two companies to cement succession. Instead, it will move toward raising the value of Hanwha Corp. prior to turn it into a holding firm,” said Lee Sang-won, an analyst at Hanwha Investment & Securities.

Challenges ahead

Following the so-called big deal with Samsung, the company had to deal with series of rumors that it has been pursuing selling its less-important affiliates to meet the cash demand ahead of the planned acquisition.

Employees of Samsung Techwin and other Samsung units to be taken over by Hanwha are opposing the deal, threatening to form a union to kill the deal.

Hanwha has started selling its stakes in Galleria and Hanwha Hotel & Resorts.

It has also been rumored that it would sell its insurance units ― Hanwha Life Insurance and Hanwha General Insurance.

The group denies such rumors, claiming that it has secured fund-raising methods to take over the Samsung units.

“The two- to three- year installment payment for the deal must have fed the rumors. We have agreed with Samsung to pay it in installments and we have been reviewing possible options,” said a company official. “One thing clear is that we are not selling our affiliates and that we are not short of cash.”

Hanwha Corp. will acquire a 32.4 percent stake in Samsung Techwin for 840 billion won, while Hanwha Chemical and Hanwha Energy will buy a 57.6 percent stake in Samsung General Chemicals for 1.06 trillion won.

Samsung Techwin’s acquisition payment has been agreed to be made in two years, while that of Samsung General Chemical will be done in three.

Hanwha should pay 844 billion won to Samsung by June next year and another 738 billion and 318 billion won in 2016 and 2017 respectively. The company however didn’t suggest the clear picture of how it will fund the acquisition.

Kang Sun-a, an Analyst at KB Investment and Securities said that Hanwha’s financial burden for the deal will be limited.

Suggesting the possibility of less than five percent Hanwha Life Insurance stake and the utilization of the 300 billion won Corporate Partnership Fund it has, Kang said “With the current cash and cashable asset of 280 billion won, the financial burden will be only limited.”

Another hurdle it faces is the opposition of Samsung employees.

They formed their first-ever union and signaled that they will stage a protest against the sale. The Samsung workers have been also preventing Hanwha from conducting due diligence on their factories.

Hanwha, however, says that it will go ahead with the deal without the inspection.