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IPOs

Hyundai Motor’s construction unit seeks listing in Q1 2022

Chairman Chung Euisun may use proceeds from Hyundai Engineering’s IPO to restructure corporate governance

By Oct 01, 2021 (Gmt+09:00)

Malaysia Melaka Refinery Diesel Euro 5 Project conducted by Hyundai Engineering. The company is seeking an IPO in the first quarter of 2022 (Courtesy of Hyundai Engineering)
Malaysia Melaka Refinery Diesel Euro 5 Project conducted by Hyundai Engineering. The company is seeking an IPO in the first quarter of 2022 (Courtesy of Hyundai Engineering)

Hyundai Engineering Co., Hyundai Motor Group’s construction arm, started the process for an initial public offering (IPO) expected in the first quarter of 2022 with its corporate value forecast as high as $842 million. The listing is predicted to help the group restructure its corporate governance.

Hyundai Engineering filed for a preliminary review of its listing on the Kospi to the Korea Exchange on Sept. 30, according to investment banking industry sources. The exchange is expected to approve the listing plan in November unless it finds major issues from the review.

Once the company obtains approval, it will decide details such as the IPO size, as well as ratios of new and old shares. It is predicted to debut on South Korea’s main bourse in the first quarter of 2022.

MORE VALUED THAN ITS TOP STAKEHOLDER

The company’s corporate value is evaluated at up to 10 trillion won ($842.2 million). Its market capitalization was estimated at 9.5 trillion won with its shares traded at 1.26 million won apiece on the domestic over-the-counter market as of Sept. 30. Some analysts said the company’s valuation was too high, given its largest stakeholder Hyundai Engineering & Construction’s market capitalization of 5.7 trillion won. Hyundai Engineering & Construction has a 38.62% stake.

Hyundai Engineering reported a revenue of 3.6 trillion won and an operating profit of 210.3 billion won in the first half, up 0.5% and 52.7% on-year, respectively.

Hyundai Engineering founded in 1974 focuses on construction as well as the development of plants and infrastructure. The company expanded its business by acquiring Halla Engineering and Hyundai Heavy Industries Co.’s engineering center. Hyundai Engineering was taken over by Hyundai Engineering & Construction in 1999 and separated again in 2001 from the largest stakeholder. In 2014, Hyundai Engineering completed the current business portfolio by acquiring Hyundai Amco.

Hyundai Engineering’s shareholders
Unit:%

Graphics by Jerry Lee


TO RESTRUCTURE CORPORATE GOVERNANCE

Hyundai Motor Group is expected to restructure its corporate governance after Hyundai Engineering’s listing, the local brokerage industry sources said. The IPO is predicted to help group Chairman Chung Euisun, the No. 2 shareholder of the unit with a 11.72% stake, cash in his 890,327 shares.

The chairman’s stake is forecast to be valued at more than 1 trillion won if Hyundai Engineering’s market capitalization reaches 10 trillion won on the Kospi debut. Hyundai Engineering’s other key shareholders include the group’s affiliates such as Hyundai Mobis and Kia Corp. and its Honorary Chairman Chung Mong-koo.

“Chairman Chung (Euisun) is likely to sell a part of his stake at the IPO and then unload the rest step by step when its value rises after the listing, rather than dumping all at once,” said a brokerage industry source. “He may use the proceeds to buy a stake in Hyundai Mobis that is at the top of the group corporate governance structure.”

Chung currently has a mere 0.3% stake in the group’s car parts maker.
Hyundai Motor Group Chairman Chung Euisun
Hyundai Motor Group Chairman Chung Euisun

NIGHTMARE OF ELLIOTT

In 2018, Hyundai Motor Group had sought to revamp its governance structure including a plan to spin off Hyundai Mobis’ module and warranty businesses, and combine them with the group's logistics unit Hyundai Glovis Co., while making Hyundai Mobis the group’s holding company.

But the group could not do this due to strong opposition by US activist hedge fund Elliott Management. It failed to draw up an agreement among shareholders on the ratios of the spin-off and merger between Hyundai Mobis and Hyundai Glovis, analysts said.

Not to repeat the failure, Hyundai Motor Group is widely expected to adjust the ratios, while putting Hyundai Mobis at the top of the group, according to the business community and the financial investment industry sources.

Write to Jin-Seong Kim at jskim1028@hankyung.com

Jongwoo Cheon edited this article.

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