Signs of Prolonged Sale of Hyundai Heavy Power... Structural Improvement Out of Sync

[Asia Economy Reporter Lim Jeong-su] Hyundai Heavy Industries Group has faced some setbacks in its group restructuring strategy after failing to sell Hyundai Heavy Industries Power (Hyundai Power) early. Although the original buyer, Bayside Private Equity (Bayside PE), failed to raise acquisition funds, it is evaluated that the group’s decision to increase the stake for sale to over 95% during the mid-sale process lowered the likelihood of the deal’s success. The group is attempting to resell by finding another buyer, drawing attention to whether the deal will be finalized.

◆ Withdrawal of acquisition contract with Bayside PE... Setback as sale stake increased to 95% = According to the investment banking (IB) industry on the 1st, Hyundai Heavy Industries Group is looking for a new investor to acquire the controlling stake in Hyundai Power, but no suitable buyer has emerged yet. The equity acquisition contract signed with Bayside PE in the second half of last year was reportedly withdrawn after the PE failed to raise investors. Having passed the pre-set sale deadline, this effectively means the early sale failed.

Bayside PE had established a holding company, ‘HPS Holdings,’ last year to purchase existing shares of Hyundai Power held by Korea Shipbuilding & Offshore Engineering. Initially, Bayside was to acquire about 75% of the total shares, with the acquisition price set at 160 billion KRW. Even after the share sale, Korea Shipbuilding & Offshore Engineering would retain 25% of the shares, which was expected to maintain stability in group-related orders after the share transfer agreement. Currently, Korea Shipbuilding & Offshore Engineering holds 100% of Hyundai Power’s shares.

Additionally, Hyundai Heavy Industries Group was to hold 25% of the subordinated shares, creating a structure with little burden in recruiting additional subordinated investors. An IB industry insider said, “If the acquisition structure had proceeded as planned, even if Hyundai Power’s share value dropped to about two-thirds, there would have been no problem recovering the funds.”

Investor recruitment, which initially proceeded smoothly, began to falter when Hyundai Heavy Industries Group increased the sale stake by more than 20 percentage points. The sale stake was raised to 95.5%. If the deal were completed under this changed structure, Korea Shipbuilding & Offshore Engineering would be left with only 4.5% of Hyundai Power’s shares. This increased the amount of investor recruitment and reduced the repayment stability for mid-tier investors.

As investor sentiment suddenly cooled, Hyundai Heavy Industries Group offered incentives. An industry insider said, “Hyundai Heavy Industries Group agreed to receive about 33 billion KRW later, corresponding to the increased sale stake.” They reduced the burden of investor recruitment by agreeing to lend funds needed for the additional share acquisition.

Bayside PE had to significantly change HPS Holdings’ investment structure as the acquisition stake increased. It is known that the RPS (Redeemable Preferred Shares) recruitment amount was reduced to around 20 billion KRW, while the subordinated recruitment amount was increased to about 60 billion KRW. About half of the subordinated recruitment amount was to be covered by the loan amount Korea Shipbuilding & Offshore Engineering would receive later. An industry insider evaluated, “The group’s increase in the sale stake undermined the stability of the share acquisition funding structure, making investor recruitment difficult.”

◆ New transaction partner and sale MOU = Korea Shipbuilding & Offshore Engineering recently signed a memorandum of understanding (MOU) for share acquisition with a new buyer. After failing once to sell the shares, it is expected that adjustments to the existing sale structure will be inevitable for a successful sale.

An investment institution official predicted, “If Korea Shipbuilding & Offshore Engineering makes the sale structure more investor-friendly, such as by investing a certain level of subordinated shares or lowering the share sale price, the possibility of sale could increase.” A Korea Shipbuilding & Offshore Engineering official said, “We understand that negotiations are currently underway with the buyer regarding the terms of the share transfer.”

Whether Hyundai Power can continue to achieve stable performance in the future is also expected to affect investor recruitment. An industry insider analyzed, “The sustainability of the group captive sales, which served as a performance safety net, and the potential for performance improvement in the industrial boiler business will be key variables in evaluating the company’s value.”

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