Hyundai Group to split to survive

Hyundai Engineering & Construction (HEC), which has successfully secured about 1 trillion won of cash through self-rescue measures, is expected to get out of its financial trouble. Now investors and businesses are watching to see whether Hyundai can be reborn as a blue-chip construction company and whether Hyundai Group as a whole can regain reliability.

To such a question, Hyundai answered that it would separate electronics and heavy industries units from the group at the earliest possible date, as well as abandon its financial businesses.

Hyundai is going to spin off Hyundai Electronics Industries (HEI) and Hyundai Information Technology 1-2 years ahead of schedule.

HEI has been suffering difficulties in cash flow because of falling memory chip prices, a global glut of TFT-LCDs and 8 trillion won of debt. However, investors are more worried about the fact that the company might not focus on its own problems because of the problem faced by the group.

To tackle such a concern, Hyundai plans to sell ownership of chairman Chung Mong-Hun (1.7%), Hyundai Merchant Marine (9.25%), Hyundai Heavy Industries (7.01%) and Hyundai Elevator (1.17%) in HEI and use the fund, which is estimated at hundreds of billions of won, to normalize operations of other Hyundai companies such as HEC.

Still, Hyundai Group plans to sell its stake to overseas investors who are friendly to Hyundai in order to maintain its right of management. Hyundai officials hope to run the company just like privatized Pohang Iron & Steel.

Already, Hyundai Heavy Industries (HHI) is separated from the group in real terms. But its formal separation from the group would help the company in its operation. HHI, which is the most competitive shipbuilder in the world, was given a cold reception in the market because of its financial support to insolvent sister companies.

Both Hyundai Motor and HHI refused to take over Hyundai Corp., but it might not face a serious situation because it could handle export services for Hyundai Motor, which was arranged through a compromise among the Chung brothers.

If Hyundai separates electronics and heavy industries businesses and withdraws from financial businesses, the group will become a smaller conglomerate with 17 companies, including HEC, Hyundai Merchant Marine and Hyundai Asan. And its corporate ranking in terms of assets would fall to fifth place with 25 trillion won from the current first place with 88 trillion won.

On the other hand, Hyundai Motor Group would rise to fourth place with 34 trillion won. HHI would emerged as the ninth largest conglomerate with 11.8 trillion won of assets, outplaying Kumho Group and Hanwha Group.

For chairman Chung Mong-Hun, it will be painful, as he has to abandon financial businesses that he built up and sell ownership in HEI.

Lee Byung-Ki eye@donga.com