Hyundai Group agreed to sell its logistics unit to a consortium led by Orix Corp. (8591), Japan’s largest commercial finance company by market value, as the cash-strapped chaebol sells assets to shore up finances.
Orix teamed up with South Korea’s second-largest shipping line Hyundai Merchant Marine Co. (011200) to buy 88.8 percent of Hyundai Logistics Co. for 600 billion won ($584 million), the group said in an e-mailed statement today. As part of the restructuring, Hyundai Group will buy the 19.95 percent stake in Hyundai Elevator Co. (017800) that was owned by the logistics company.
The sale increases optimism that Hyundai Group, which has raised 2.66 trillion won from selling assets, may improve its finances after a downturn in the global shipping business hurt the chaebol’s companies. The purchase will add to the $5.2 billion of acquisitions Orix has announced in the past three years, according to data compiled by Bloomberg.
“The deal will help ease Hyundai Group’s cash problems for now,” said Jay Ryu, an analyst at Daewoo Securities Co. in Seoul. “Still, the shipping industry is weak and is only beginning to recover. The industry needs to recover faster or the group won’t be able to fully recover from its current situation.”
Hyundai Merchant shares fell 0.5 percent to 10,150 won in Seoul today, after earlier gaining as much as as much as 6.9 percent. Orix advanced 0.7 percent to 1,630 yen in Tokyo. Hyundai Elevator gained 4.6 percent and Hyundai Securities Co. gained 2.5 percent.
“We have undertaken an aggressive restructuring plan to get funds and reduce debt,” Hyundai Group said in the statement. “We believe this will provide an impetus in restoring market confidence in the group.”
Hyundai Group said in March it was considering selling a stake in the logistics unit as part of a plan to raise 3.3 trillion won from asset sales to ease a cash shortage.
The group was founded in 1947 by Chung Ju Yung. Hyundai Motor Group was spun off in 2000 amid efforts to reduce the power of the chaebol business groups. Hyundai Heavy Industries Group, which owns shipbuilders and a refiner, separated in 2002, while a department store unit left in 1999.
The chaebols often control units through a web of cross-shareholdings. Hyundai Merchant is the biggest shareholder of 11 of Hyundai Group’s 20 subsidiaries. Hyundai Elevator is the biggest shareholder of Hyundai Merchant and Hyundai Logistics is the second biggest for Hyundai Elevator.
Orix and Hyundai Merchant are buying the stake in Hyundai Logistics from Hyundai Group, Hyundai Global Co., Hyundai Securities (003450) and Chairwoman Chairwoman Hyun Jeong Eun. Orix will own 70 percent of the buyers consortium with Hyundai Merchant owning the rest.
Hyundai Group is also selling its entire stake in Hyundai Securities, properties and other businesses as a slump in the global shipping industry has caused its main Hyundai Merchant unit to struggle to repay maturing debt. Orix, whose operations include leasing, lending and real estate, has been expanding abroad as a shrinking population limits the domestic growth potential of Japanese businesses.
Orix owns Orix Aviation Systems Ltd., which leases planes to carriers around the world, and Orix Maritime Corp., which charters ships. It has built several logistics centers in Japan.
Orix in December agreed to sell its entire 71.9 percent stake in STX Energy Co., a South Korean company that operates power plants and was sold to help raise funds for its cash-strapped parent STX Group. The stake was sold to GS Holdings Corp. and LG International Corp. for 630.7 billion won.