[IPO Spotlight] The Promise Between Hanwha Group and Samsung Group... Hanwha Jonghap Hwachem

Hanwha General Chemical Ulsan Plant

[Asia Economy Reporter Park So-yeon] Hanwha General Chemical is accelerating its initial public offering (IPO) process to enter the KOSPI within this year. Hanwha Group plans to keep its promise with Samsung Group and secure investment funds through this IPO.

◇Hanwha General Chemical, No.1 Domestic PTA Producer with Annual Capacity of 2 Million Tons

The predecessor of Hanwha General Chemical was Samsung General Chemical, established in 1974. Hanwha Group acquired it in 2015. Hanwha General Chemical has consistently maintained the No.1 market share in high-purity terephthalic acid (PTA) in Korea, surpassing Lotte Chemical. PTA is used as a raw material for polyester fibers and PET bottles. Since July last year, it has also started supplying 450,000 tons of PTA annually to Lotte Chemical. Hanwha General Chemical has secured an annual production capacity of 2 million tons of PTA. Industry insiders predict that Hanwha General Chemical is highly likely to position hydrogen energy and hydrogen vehicles as future growth points. In 2018, Hanwha General Chemical invested $100 million in Nikola, a U.S. hydrogen truck company.

The main purpose of Hanwha General Chemical’s listing is to keep its promise with Samsung Group. Five years ago, Samsung Group transferred its defense and chemical divisions to Hanwha, retaining a 24.1% stake in Hanwha General Chemical (Samsung C&T 20.05%, Samsung SDI 4.05%). At that time, Hanwha’s acquisition cost alone reached 2 trillion won, which was a significant financial burden. Both parties included a clause in the contract to list Hanwha General Chemical by the end of April 2021. The period can be extended up to one year at Hanwha’s request. If the listing fails, Samsung Group can exercise a stock sale request right to sell its shares back at a certain price. To prevent cash outflow from exercising this right, the IPO must be completed before 2022.

The major shareholders of Hanwha General Chemical are Hanwha Energy (39.16%) and Hanwha Solutions (36.04%). Hanwha Solutions is led by Kim Dong-kwan, the eldest son of Hanwha Group Chairman Kim Seung-yeon, while Hanwha Energy recently gained attention as Kim Dong-seon, the third son, returned. The governance structure flows from H Solutions -> Hanwha Energy -> Hanwha General Chemical. H Solutions acts as a holding company for the group alongside Hanwha Corporation. This company is a personal firm where Kim Dong-kwan owns 50%, and Kim Dong-won (second son), Executive Director of Hanwha Life, and Kim Dong-seon, Executive Director, each own 25%. Industry insiders expect that once Hanwha General Chemical’s IPO is completed, the financial structures of Hanwha Solutions and Hanwha Energy will improve, and the corporate value of H Solutions will also increase.

◇Hanwha General Chemical, What Is Its Corporate Value?

Industry opinions differ on the estimated corporate value of Hanwha General Chemical. Optimists estimate the corporate value at around 4 to 5 trillion won, considering growth potential and past transaction history. Conservatives argue that, based on recent performance and price-earnings ratios of peer companies, a corporate value exceeding 4 trillion won is excessively high. The IPO is expected to be possible as early as the third quarter. Since it did not undergo a designated audit based on last year’s annual results, it must have its Q1 results audited externally for accounting transparency. Assuming the audit report is released within the first half of the year and the Korea Exchange conducts a preliminary review for about two months, the public offering could be possible around late August. Hanwha General Chemical’s sales amount to 1.6362 trillion won (as of the end of 2019), with total assets of 3.5665 trillion won.

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