Hyundai Heavy Industries splits into six firms

Hyundai Heavy Industries splits into six firms. November. 16, 2016 07:11. by Min-Ji Jung jmj@donga.com.

As a major slump continues in the shipbuilding sector with no signs of improvement, Hyundai Heavy Industries has made a painful decision to demerge the entire company into six different units that will be operated independently. The world’s No. 1 shipbuilder has adopted a contingency plan much earlier than expected as uncertainty looms large in the shipbuilding industry with shrinking sales.

During a board member meeting on Tuesday, Hyundai Heavy Industries’ board of directors agreed on splitting the company into six different firms, including shipbuilding, offshore and engineering and engine and machinery, electro electric system, construction equipment, green energy, robot business and service. “Each firm will be operated independently in order to enhance competitiveness in different business areas," Hyundai Heavy Industries said. In other words, the company is taking an intensive survival plan, trying to restructure its business and seeking chances for each business segment’s survival as a sales drop continues with no end in sight.

After restructuring, the debt ratio of Hyundai Heavy Industries’ core businesses will decrease from 144 percent, as of end-2015, to below 100 percent. The company aims at improving balance sheets of core business segments by transferring debts to other non-core assets after restructuring. The company’s debt as of end-September amounted at 7.34 trillion won (6.28 billion dollars) on a non-consolidated basis.

Hyundai Heavy Industries will be split on a horizontal basis. If a business segment is demerged as a subsidiary, sales and profit of the subsidiary will be consolidated into the mother company’s balance sheet. On the other hand, if each firm is operated independently after split up, each company’s balance sheet will not create any influence into other companies.

Forecasting some oppositions from the labor union, Hyundai Heavy Industries said, “Under the law, we do not need confirmation from the labor union on split up, and we only need to notify it.” The labor union of the company went on strikes 10 times until recently, opposing the company’s restructuring plan.