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Will the Hyundai Group Break Apart?

Posted August. 04, 2003 21:55,   


Where will the Hyundai Group go from here?

After the shocking news that Hyundai Asan Chairman Chung Mong-hun committed suicide by throwing himself from his office on the 12th floor, the Hyundai Group is at yet another crossroads since the great loss of its former Honorary Chairman Chung Joo-young.

The Hyundai Group`s asset value amounts to 10.2 trillion won, ranking it 15th among Korean chaebol (conglomerates), reported the Fair Trade Commission this April. The group, once the largest chaebol with some 80 affiliates, has become smaller after going through an infamous internal fight back in 2000, which included the spin-off of Hyundai Motors and Hyundai Heavy Industries in 2001 and 2002, respectively.

The death of Chung Mong-hun will greatly affect the management and governance structure of Hyundai Group. Chairman Chung has been in control of the Hyundai Group, using Hyundai Merchant Marine Co. as a holding company. He led the group with the title of Honorary Chairman`s son and successor. Now, there is no alternative figure who fits the position.

Some people see that Hyundai Merchant Marine Co. and Hyundai Corporation will cut themselves free from the Hyundai Group, as they alter their management system into a more-expertise-based one. If they sell off all shares of other affiliates, the speed of the spin-off process would be accelerated.

Kyobo Securities analyst Park Suk-hyun said, “It would be difficult for Chung`s mother-in-law or heir to serve his position. In the end, Hyundai affiliates will have to go their own way.”

The role of Hyundai Merchant Marine Co. is also likely to be reduced. The company has already promised to withdraw its support from its North Korean business, to ban support from its affiliates and to renounce its role as a holding company to acquire funds from creditors including Industrial Bank.

An official from Hyundai Merchant Marine Co. said, “Although we announced our intention of maintaining our independent management system, we were somehow considered a holding company for the Hyundai Group because of Chairman Chung.” Some have interpreted this as proof that the company will accelerate its spin-off process from the group.

Some people predict that the destinies of other Hyundai affiliates will not be greatly affected. Management of Hyundai Construction and Hynix Semiconductor, a main part of the business group, has been turned over to banks, while corporate restructuring of other affiliates, such as Hyundai Securities and Hyundai Corporation, is in its final stage.

Other people forecast that the Hyundai Group will revive itself by having Hyundai Heavy Industry acquire shares of affiliates led by Chairman Chung.

Who will take responsibility? = Hyundai Asan and its business projects in North Korea will be most affected by Chung`s death. The Hyundai Group made it clear on August 4 that it would continue its South-North Economic Cooperation Business. The business has been led by Hyundai Asan, but has been in great trouble due to a lack of funds.

Hyundai Asan`s accumulated losses as of last year stood at 280.3 billion won. Only with the help of the National Tourism Organization (90 billion won) did the company escape from going under. In the past, Hyundai Merchant Marine Co. provided capital, but nothing more.

For the Hyundai Group to continue with its North Korea tourism business, somebody in the Hyundai family will have to take over the job and assist President of Hyundai Asan Kim Yoon-kyu. Realistically, alternative figures could be Hyundai Motors Chairman Chung Mong-gu or Hyundai Heavy Industry Chairman Chung Mong-joon.

However, if the former takes the job, he would face strong resistance from its foreign investors (who hold 46.3 percent of all shares). The latter would probably not be able to take over the business since he is more of a politician than an entrepreneur of late.

An official from the creditor group said, “The two people would not take the responsibility since they know that the business does not have any positive future. So, the project might be handled not by a private institution but by government funds.”