Corporate World Reshaping Governance "Resolving Long-Standing Issues Like Succession and Circular Shareholding"

Hyundai Motor, Hanwha, and Others Expected to Accelerate Corporate Governance Restructuring
Samsung, Hanjin Face Urgent Need to Resolve Inheritance Tax Issues

[Asia Economy reporters Choi Dae-yeol, Lee Chang-hwan, Woo Soo-yeon, Lee Dong-woo] As SK Group has formalized its transition to an intermediate holding company through the spin-off of SK Telecom, other groups such as Hyundai Motor Group and Hanwha Group have also begun restructuring their governance.

It is analyzed that major groups are accelerating efforts to resolve long-standing issues such as succession of management rights, elimination of circular shareholding, and inheritance tax problems.

Hanwha and Hyundai Motor Expected to Begin Succession Work in Earnest

According to the business community on the 15th, Hanwha Group is preparing for succession work as Chairman Kim Seung-yeon returns after seven years. All three of Kim’s sons, including eldest son Kim Dong-kwan, President of Hanwha Solutions, are actively involved in management.

Hanwha’s succession is controlled by H Solutions, which operates system integration (SI) businesses. Kim Dong-kwan holds 50% of the shares in this company, while the second son Kim Dong-won, Executive Director of Hanwha Life Insurance, and the third son Kim Dong-sun, Deputy General Manager of Hanwha Energy, each hold 25%. H Solutions owns 100% of Hanwha Energy, which, together with Hanwha Solutions, controls Hanwha Total Petrochemical, effectively forming another holding company structure.

Seung-yeon Kim, Chairman of Hanwha Group

The largest shareholder of Hanwha Corporation, the de facto holding company, is Chairman Kim with 22.65% of shares. Kim Dong-kwan holds 4.44%, and Kim Dong-won and Kim Dong-sun each hold 1.67%. H Solutions has increased its stake in Hanwha Corporation from 4.2% to 5.19% by purchasing shares continuously from late last year to early this year.

Plans such as a merger between Hanwha Corporation and Hanwha Solutions, or H Solutions acquiring additional shares of Hanwha Corporation before merging, are being discussed. The planned initial public offering (IPO) of Hanwha Total Petrochemical, targeted within this year, is also seen as a significant variable in the succession process as it affects the value of controlling companies like H Solutions. H Solutions holds 39.16% of Hanwha Total Petrochemical.

Hyundai Motor Group has also formalized its governance restructuring by pushing for the IPO of Hyundai Engineering, an unlisted construction company. Hyundai Engineering is aiming for a KOSPI listing within this year.

Hyundai Motor Group Chairman Chung Eui-sun is the second-largest shareholder of Hyundai Engineering, holding 11.72%. The financial investment industry estimates Hyundai Engineering’s post-listing corporate value to reach 10 trillion won. Considering this, Chairman Chung’s stake is valued at approximately 1.2 trillion won.

Industry insiders expect Chairman Chung to sell his shares after Hyundai Engineering’s listing to secure funds for governance restructuring. Except for Hyundai Glovis, where he holds 23.29%, he does not have many shares in core affiliates. To reach the top of the governance structure, securing shares in Hyundai Mobis, which acts as the holding company, is most important.

Currently, Chairman Chung holds only 0.32% of Hyundai Mobis shares. His stake in Hyundai Motor, a core affiliate, is also just 2.62%. It is therefore expected that Chairman Chung will use the cash secured from Hyundai Engineering’s IPO to purchase shares in Hyundai Mobis or Hyundai Motor, simplifying the governance structure.

Chung Euisun, Chairman of Hyundai Motor Company

Samsung and Hanjin Tackle Massive Inheritance Tax Issues

Some groups are addressing massive inheritance tax issues. Samsung, which has completed management succession, is struggling to prepare for inheritance tax on the late Chairman Lee Kun-hee’s estate. The inheritance tax on stock shares alone amounts to 11 trillion won, and including art pieces, real estate, cash, and other assets, the total inheritance tax exceeds 1 trillion won, reaching up to 12 trillion won, which must be raised in a short period.

With the deadline for inheritance tax filing and payment approaching at the end of this month, the Samsung family is reportedly considering donating some of the art pieces owned by Chairman Lee. If the donation is confirmed before the payment deadline, the art pieces will be excluded from the inheritance tax base. The family is also reportedly considering share sales or bank loans to raise cash for the tax payment.

Chairman Cho Won-tae of Hanjin Group and his children have been busy raising funds for the 270 billion won inheritance tax since the death of Chairman Cho Yang-ho in 2019. Since last year, they have been using the installment payment system to pay the inheritance tax in six installments over five years, which has been a financial burden each year.

Last year, Chairman Cho secured 40 billion won in cash by borrowing against shares of Hanjin KAL and sold 0.75% of the 3.83% stake in Jungseok Enterprise, a group affiliate, last month to raise 3 billion won.

Lee Myung-hee, advisor of Jungseok Enterprise, and Cho Hyun-min, Vice President of Hanjin Co., also raised 27 billion won and 18 billion won respectively through share sales of Jungseok Enterprise. Among the three siblings, Cho Hyun-ah, former Vice President of Korean Air and the only one without a position in the group, sold 55,000 shares of Hanjin KAL last month to Grace Holdings under KCGI in an over-the-counter transaction, securing about 3.4 billion won to prepare for inheritance tax of around 60 billion won.

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