The recent demerger decision by the board of directors of Hyundai Heavy Industries Co. is believed to be masking a motive beyond a restructuring purpose - running the business under holding system -, an ownership structure becoming in fashion for Korea’s family-owned chaebols to modernize and legitimatize command over their business.

On Tuesday, Hyundai Heavy Industries said it will split the company better known as the country’s top shipbuilder into six entities - each responsible for shipbuilding, marine, and engines (Hyundai Heavy Industries), electric and electronics (Hyundai Electric), construction tools (Hyundai Construction Equipment), robotics (Hyundai Robotics), green energy, and facility support operations and other services. Four of the six businesses will be spun off while the two remaining relatively small ones will become subsidiaries through cross-affiliate equity arrangement.

The announcement sent the business community studying the real motive behind the planned demerger of the group whose de facto owner is its largest shareholder Chung Mong-joon through complicate cross-affiliate stake-holding across Hyundai Heavy Industries and sister companies Hyundai Samho Heavy Industries Co. and Hyundai Mipo Dockyard Co.

An unnamed official from the brokerage industry said that the spin-off will ultimately transform the ownership structure of Hyundai Heavy Industries and that the tentatively-named Hyundai Robotics responsible for the group’s robotics business will practically become the holding company of the group through purchase of full stake in Hyundai Oilbank Co. and 13.4 percent treasury stock.

Once a holding entity is formed, the family-run legitimate hold over the group would become simpler.

Chung and nonprofit family foundations including Asan Foundation own 13.3 percent of Hyundai Heavy Industries shares and control the group through complicate cross-shareholding cycle.

The local brokerage industry notes Chung and his family would need about 800 billion won ($686 million) to buy enough shares in Hyundai Heavy Industries from Hyundai Mipo to command majority stake.

Once Hyundai Robotics becomes the group’s holding company, Chung can strengthen hold over the group without going through the complicate stake-holding web after owning 40 percent or more shares in the company.

The holding arrangement would become complete if Chung can transforms his stakes in Hyundai Heavy Industries, Hyundai Electric, and Hyundai Construction Equipment into equity in Hyundai Robotics and up his stake to over 40 percent from current 10.15 percent. When the procedure could be complete is, however, unknown.

The four companies that will be split from Hyundai Heavy Industries and newly established as separate entities - Hyundai Heavy Industries, Hyundai Electric, Hyundai Construction Equipment, and Hyundai Robotics - are expected to be listed on the main Kospi market in May at the earliest after a shareholders’ meeting in February next year.

Shares of Hyundai Heavy Industries closed at 153,500 won on Wednesday, up 4.78 percent from the previous session.

By Moon Ji-woong

[ⓒ Pulse by Maeil Business News Korea & mk.co.kr, All rights reserved]