Hyundai Asan to sell $30.7 million worth of shares for capital restructuring

Hyundai Asan Co. under South Korean conglomerate Hyundai Group will raise 40 billion won ($30.7 million) in its seventh share sale since it was forced to halt its North Korean tourism programs and other inter-Korean economic projects due to strained relations between the two Koreas.

Hyundai Asan on March 9 decided to sell 8 million common shares at 5,000 won apiece to raise 40 billion won in total. The share subscription is scheduled on May 3 and 4 to complete the sale on May 9.

Of the total proceeds, 20 billion won will be used for working capital, and the remaining for debt repayment.

On top of this, the company will reduce capital to 10,739,662 shares outstanding from 32,218,987 under a 3-to-1 capital reduction scheme. This will shave the company’s shareholders’ equity to 53.6 billion won from 161 billion won.

The latest capital restructuring comes as Hyundai Asan’s equity capital has been hit hard after posting losses for more than a decade.

Its shareholders’ equity was 161 billion won versus 39.5 billion won of total shareholders’ equity as of end-2022. Following the upcoming capital reduction and rights offering, its capital impairment ratio would drop to 15.2% from the current 77.5%, not enough to escape from capital impairment.

ONE-SIDED BUSINESS PORTFOLIO

The inter-Korean business and construction company has so far raised 112.2 billion won from the previous six rounds of rights offerings since 2009. The last share sale was in 2019 but that didn't do much to improve the company’s finances.

Hyundai Asan was set up in 1999 under the Hyundai Group to carry out inter-Korean economic projects including tourism after the group’s late founder Chung Ju-yung crossed the border between the two Koreas with a herd of cattle a year earlier, paving the way for the heyday of inter-Korean relations in the early 2000s.

The company flourished with the development of the Kaesong Industrial Complex, in which South Korean employers ran factories with North Korean workers, in December 2002, and tourism programs in Kaesong and Mount Kumgang in the following years.

But its inter-Korean business came to a full stop after inter-Korean relations turned sour after a few incidents including the death of a South Korean tourist at the Mount Kumgang resort in May 2008 and the closure of the Kaesong Industrial Complex in 2016, followed by a series of nuclear and ballistic missile tests by Pyongyang.

To offset the losses, Hyundai Asan has jumped into the local construction market. The new business helped the company turn around in 2021 and 2022 with 5.1 billion won and 1.6 billion won in operating profit, respectively.

It now depends heavily on construction, accounting for 88% of its entire sales as of 2022. The inter-Korean business was responsible for a mere 12%.

The company will use the proceeds from the upcoming share sale to bolster its construction business to generate more cash.

Hyundai Asan’s largest shareholder is Hyundai Elevator Co., another Hyundai Group affiliate, with a 73.9% stake.

After the rights offering in May, the elevator-making sister company’s holding in Hyundai Asan is expected to increase further, according to market analysts. In the previous rights offerings, its former sibling companies Hyundai Engineering & Construction Co. and Hyundai Motor Group did not take the shares.

Now eyes are on whether Hyundai Group Chairwoman Hyun Jeong-eun will take part in the fresh share sale. She currently holds 4.28% in Hyundai Asan.

Hyundai Elevator shares traded up 2% at 26,050 won in the morning session on Wednesday. Hyundai Asan is not listed. 

Write to Seok-Cheol Choi at dolsoi@hankyung.com

Sookyung Seo edited this article.