Daelim Industrial Shifts to Holding Company Structure, What Is the Market's Evaluation?

High Expectations, But Stock Price Has Not Yet Reflected Them

[Asia Economy Reporter Park Jihwan] Market evaluations of Daelim Industrial, which is set to undergo corporate spin-off and transition to a holding company system next year, are divided. Credit rating agencies analyze that despite the reduction in scale due to the spin-off, the impact on the credit ratings of individual companies will be minimal. On the other hand, the absence of the anticipated shareholder return policy has acted as a negative factor for the stock price.

According to the financial investment industry on the 15th, Daelim Industrial held a board meeting on the 10th and resolved to split into three companies: a holding company, construction, and petrochemicals. Daelim Industrial will be divided by an equity split into DL, the holding company as the surviving entity, and DL E&C, responsible for the construction business, while the petrochemical division will be spun off as a new company, DL Chemical, through a physical split.

The market reaction is generally positive. It is expected that by splitting Daelim Industrial into three companies, the limitations and risks of being a conglomerate will be reduced, and the management efficiency of each business division will improve. Until now, Daelim Industrial faced constraints in pursuing individual growth strategies by placing construction and petrochemical divisions, which have different business cycles, under one umbrella. This split is also seen as a move to actively restructure corporate governance.

Concerns that the prices of Daelim Industrial’s outstanding corporate bonds might fall around the spin-off date are considered unlikely. Previously, after Taeyoung Construction’s spin-off, the credit spread on its 3-year corporate bonds widened by 2.1 basis points (1bp = 0.01 percentage points) compared to the previous day.

However, in Daelim Industrial’s case, although the scale of each company will inevitably shrink after the spin-off, the impact on the credit ratings of individual companies is expected to be minimal. Hwang Deokgyu, a researcher at NICE Credit Rating, said, "For debt securities issued before the spin-off, the surviving company and the newly established company have joint guarantee obligations under the Commercial Act, so the likelihood of rating changes is low," adding, "We plan to manage the credit ratings of corporate bonds and commercial papers issued before the spin-off as jointly guaranteed."

However, the stock market’s response has not been favorable so far. Daelim Industrial’s stock price has fallen more than 10% from the announcement of the spin-off plan to this day. Analysts attribute this to the failure to present concrete policies on shareholder returns or dividends. Daelim Industrial’s dividend payout ratio rose from 7.6% in 2017 to 9.7% in 2018, then fell to 7.1% last year.

Rajinseong, a researcher at KTB Investment & Securities, pointed out, "Daelim Industrial has maintained a conservative stance in its dividend policy, citing increased investment in the petrochemical sector," adding, "Last year, the dividend per share (DPS) was only 1,300 won, and the dividend yield was just 1.4%."

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