Daelim Industrial's Three-Pronged Strategy... Aiming for Tax Benefits and Transparent Management

Decision to Split Holding Company, Construction, and Petrochemical Units
Reevaluation of Corporate Value Through Individual Growth
Chairman Lee Hae-wook's Plan to Strengthen Control

[Asia Economy Reporter Onyu Lim] Daelim Industrial's decision to split into three companies?holding company, construction, and petrochemicals?has attracted attention to the background of this move. Primarily, the goal is to enhance corporate value by separating the construction and petrochemical businesses, which have limited synergy, and to increase transparency in the governance structure.

According to the construction and investment industries on the 11th, Daelim Industrial's three-way split is analyzed as a decision encompassing corporate value and shareholder value enhancement, governance transparency, and tax benefits. Daelim Industrial held a board meeting the day before and resolved to split into a holding company and two business companies. Daelim Industrial will be divided into the surviving holding company DL Corporation (tentative name), DL E&C (tentative name) responsible for the construction business, and DL Chemical (tentative name) for the petrochemical company. The structure involves a spin-off of DL and DL E&C by an equity division and a physical division of DL Chemical from DL.

In the investment industry, rumors of Daelim Industrial's split have been persistent. The construction and petrochemical businesses have been called "two families under one roof" due to their limited synergy, which has constrained growth. Recently, shareholders' dissatisfaction has grown over investing profits earned from the construction business into the petrochemical business. A Daelim Industrial official explained, "The construction order industry and the petrochemical plant industry cycles are inverse, which restricted new investments," adding, "By pursuing individual growth strategies through the split, the corporate value can be re-evaluated." An investment industry insider also evaluated, "This resolution is expected to resolve Daelim Industrial's 'conglomerate discount,' thereby increasing corporate value."

The accelerated timing of Daelim Industrial's split is attributed to tax benefits. Currently, when acquiring shares through in-kind contributions related to holding companies, taxes (corporate tax on capital gains and capital gains tax) do not need to be paid until disposal. However, from 2022, capital gains tax must be paid in a four-year grace period followed by a three-year installment payment plan. Although tax benefits were provided as part of the holding company promotion policy, the system was reformed due to criticism that it had been distorted as a means to expand the controlling family's power.

Daelim Industrial also expects to establish a transparent corporate governance structure centered on the holding company through the split. To support this, it plans to expand and reorganize the existing internal transaction committee into a governance committee composed entirely of outside directors. A system for appointing a lead outside director representing the outside directors will also be introduced.

In the mid-to-long term, there is speculation that this move is a strategic step to strengthen Chairman Lee Hae-wook's control. Chairman Lee holds 52.3% of the shares in Daelim Corporation, the holding company of Daelim Group, but his stake in the core company Daelim Industrial is only 23.1%, even when including related parties. Because of this, the securities industry anticipates the possibility of a future merger between Daelim Corporation and DL.

Meanwhile, Daelim plans to launch the holding company on January 1 next year after an extraordinary general meeting of shareholders on December 4. The holding company DL will focus on supporting and coordinating independent growth strategies for each affiliate. DL E&C plans to accelerate digital transformation based on stable profit growth to innovate productivity and grow as a developer-centered business operator. DL Chemical aims to expand its low-cost raw material-based business and enter new fields such as lubricants and medical new materials, with a strategy to become a global top 20 petrochemical company.

This content was produced with the assistance of AI translation services.