Hanwha S&C Co., South Korean conglomerate Hanwha Group’s information technology (IT) solutions unit, is shedding holdings in the stock by founding family members ahead of its initial public offering (IPO) in hopes to rid off public stigma against chaebol entities.

According to investment bank industry sources on Wednesday, Hanwha S&C has decided to demerge its system integration (SI) solution business as a subsidiary and sell off about 40 percent share in the new entity. The company is reported to be currently in talks with a financial investor to sell the stake in bloc sale at around 300 billion won ($262.8 million).

Hanwha S&C is an unlisted company that posted operating profit of 146.4 billion won on sales of 857.9 billion won last year. The company wholly owned by Hanwha Group Chairman Kim Seung-youn’s three sons holds a 100 percent ownership in Hanwha Energy Corp. and majority 39.16 percent stake in Hanwha General Chemical Co.

Market watchers believe Hanwha Group would use Hanwha S&C as an instrument for hereditary succession. In the longer run, it is expected to merge with Hanwha Corp. that acts as the conglomerate’s holding entity.

The reorganization also is suspected to have been triggered by tighter supervision on chaebols under new administration of President Moon Jae-in.

Hanwha S&C earned 436.2 billion won through internal trade with other Hanwha companies. Under toughened regulations, owner family members could face criminal charges if they are found to have favored a firm in which they own 30 percent or more stakes - 20 percent or more for an unlisted firm - by arranging business deals with affiliates.

Hanwha S&C plans to lower its stake in the new subsidiary to 30 percent or less through an initial public offering planned in the near future.

Using the proceeds from the sale of the stakes in the new subsidiary, the Kim princelings will likely buy additional shares in Hanwha, the group’s holding entity. The three sons currently own 7.78 percent of Hanwha’s outstanding common shares. They can more than double their holding in the holding company if they use all the shares they sold in Hanwha S&C to buy Hanwha shares.

By Han Woo-ram and Chun Gyung-woon

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