Hyundai Group aims high with bid for its old construction arm

Hyundai Group is gearing up to acquire former affiliate Hyundai Engineering & Construction in a deal which it expects to have significant synergy for its diverse businesses.

The group has for years expressed its intent to get back Hyundai E&C, which has served as the virtual backbone for Hyundai Group dating back to the days of group founder Chung Ju-yung.

Hyundai Group -- most likely to compete with Hyundai Kia Automotive Group -- has increasingly been showcasing the positive effects of acquisition of the former affiliate, claiming that the results would be beneficial not only for the company, but the nation as a whole.

Hyundai is one of the country’s top industrial companies whose business reach spans a wide variety of areas largely focused on inter-Korean affairs, logistics and finance.

“Acquiring Hyundai E&C is a priority vision we cannot forsake for the sake of securing a stable growth engine for the future,” Hyundai Group Chairwoman Hyun Jeong-eun said in a speech earlier this year.

She stressed that the group would put all of its efforts into the acquisition.
Established in 1947 by the late Chung, Hyundai E&C was put under the control of creditors including Korea Exchange Bank in 1997 following liquidity problems that erupted during the Asian financial crisis of 1997-98.

The plans to sell 35 percent of Korea’s largest builder with management rights by the end of the year were released last month, with the official sales announcement to be issued Sept. 24.

According to industry estimates, acquiring the company would require up to 3-4 trillion won.

The most notable positive impact the group’s acquisition of the construction firm would have, according to Hyundai officials, is that it would help the group continue pursuing such joint projects, not to mention its foray into Russia.
Hyundai currently has plans for developing the Northern region of Russia, and it recently signed a memorandum of understanding with Industrial Investors of Russia.
Projects with North Korea hit a snag amid strained inter-Korean relations, but the group said that a vast synergy would be inevitable once the ties get back on track.
Hyundai Asan, an affiliate of the group, has been at the forefront of the projects with Pyongyang, and would receive a boost in their building of facilities in the North with the acquisition of Hyundai E&G, company officials said.

Hyundai currently exclusively has rights for building large-scale social overhead capital in the North, such as installing electricity and communications infrastructure, laying railroads and building airports.
“These projects also would contribute to national interests by reactivating business ties between the two Koreas,” company officials said.
The synergy does not stop there.

Other Hyundai affiliates also would contribute to helping bolster both the construction firm and the group as a whole so that it may make bigger contributions to the local business environment, market watchers noted.
Hyundai Securities, for instance, could help secure stable funds for Hyundai E&C through project financing and other advanced financial tools. It also could offer efficient risk-management for the construction company.

Shipping and receiving construction equipment and materials would become easier and more convenient when going through the logistics network provided by its logistics arms Hyundai Merchant Marine and Hyundai Logiem.

Hyundai Elevator, another sister firm, could assist with its state-of-the-art transport equipment that can be efficiently utilized at construction sites.
Another upside for Hyundai Group would be its procurement of a stable business portfolio that no longer depends solely on Hyundai Merchant Marine for sales.
But the competition for Hyundai E&C may be fierce.

Hyundai Kia Automotive Group, led by Chung Mong-koo, the surviving eldest son of the Hyundai founder, has been eyeing the construction firm as well.
The current Hyundai Group head Hyun Jeong-eun took over the group after the death of her husband Chung Mong-hyun, another son of Chung Ju-yung.

Critics have noted that the automobile maker may have other reasons for seeking the purchase, such as to snap up other Hyundai affiliates.
They also point to the fact that the automaker already has a construction firm under its arm, Hyundai Amco, which brought in 1 trillion won in sales last year for the group.

By Kim Ji-hyun (jemmie@heraldm.com)
http://www.koreaherald.com/business/Detail.jsp?newsMLId=20100913000876