Jul 18, 2014

Hyundai sells logis unit to Orix

South Korean major conglomerate Hyundai Group, which is pillared on Hyundai Merchant Marine (HMM), will sell its entire 88% stake in Hyundai Logistics Co. to the special-purpose company (SPC) that will be established by Orix and HMM, according to an announcement made by Orix on July 17. To be purchased for approximately 600 billion won (around Y60 billion), the shares are expected to be acquired by the SPC in/after late August this year. HMM is the largest shareholder of Hyundai Logistics, holding around 46.8% of the issued shares of the latter. According to the notification it sent to the Korea Stock Exchange (KSE), HMM will sell its shares in Hyundai Logistics for approximately 322 billion won. Shares of the SPC will be acquired for 109.4 billion won. After the deductions from the series of transactions, Hyundai envisions that it will be able to secure funds amounting to a little more than 200 billion won.

Established in 1988, Hyundai Logistics has grown to become one of the three biggest comprehensive logistics providers in South Korea. Sales of the company totaled 786.1 billion won (about Y77.7 billion) as of 2011. It is mainly engaged in the parcel delivery, 3PL service and forwarding businesses. With regard to the parcel/courier segment, which accounts for about a third of its sales, the company has transformed it into a stable revenue/profit business by putting up logistics centers in various places within the country in order to capture the flourishing courier demand in the online/mail-order market. Further, the Hyundai Group companies and its client base have been manifesting growth in overseas businesses in recent years, with an Orix official claiming that, "We can expect growth to continue in the future."

Orix will choose a South Korean company to be its strategic partner and then together, they will jointly subscribe to the convertible preferred shares equivalent to 70% of the total shares to be issued by the SPC for about 240 billion won (Y24 billion). The SPC will issue the remaining 30% as common shares to HMM and will secure non-recourse loans from financial institutions.

With regard the Hyundai Group, Orix explained that, "As with other South Korean conglomerates, the Hyundai Group also exhibits a distinctive cross-shareholding structure where their own group companies mutually hold each other's shares, and hence faces challenges in capital efficiency" and "The Hyundai Group has announced a plan to improve its financial health at the end of last year and it is seeking to advance structural reforms including further improvement of its liquidity position. The said share transfer of Hyundai Logistics is also a part of this effort."

In line with the Group's plan to improve its financial health, HMM beefed up its financial foundations by selling businesses and assets. Following the partial sale of its terminal and bulk divisions, the company announced in February this year that it would sell its LNG transport business to a fund for 1.1 trillion won. Further, it disclosed last June that it would increase third party allocations to Market Vantage, the investment company under the umbrella of the Hong Kong-based Hutchison Group. It is projected to procure about 114 billion won (around Y11.3 billion) by the end of this year.

Orix has been proactively engaged in investment projects in South Korea, such as its capital investment in STX Energy (currently GS E&R) in 2012. The company aims to boost the corporate value of its investments by fusing its expertise in investment businesses that it has cultivated thus far and its strategic partnership in South Korea.

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