Hyundai Heavy Industries Co. handed over 11.8 percent of its stake in its subsidiary Hyundai Samho Heavy Industries Co. to private equity fund IMM Investment Corp. for 300 billion won ($264.8 million), giving Korea’s largest shipbuilder much-needed fresh capital as well as setting it on track for its long-term reorganization outline.

Hyundai Heavy Industries Group earlier this month was separated into four entities with the goal of leaving shipbuilding function with Hyundai Heavy and others spun off as independent entities under Hyundai Robotics acting as the holding company.

According to Hyundai Samho Heavy Industries on Monday, the company inked a pre-initial public offering agreement worth 300 billion won with IMM Investment. The pre-IPO refers to raising funds prior to launching an IPO that it commonly leads to an actual market listing within a few years. Industry observers expect Hyundai Samho Heavy Industries’ IPO would come around 2019.

Under the terms of agreement, IMM Investment will acquire 5.36 million convertible preferred stocks that can be converted into new shares in Hyundai Samho each at 56,000 won. When entirely converted, IMM will become the second single largest shareholder of Hyundai Samho after its parent company Hyundai Heavy Industries whose stake would be reduced to 83.7 percent.

Hyundai Samho’s market value is estimated at around 2.5 trillion won. Despite protracted slump in global ship demand, Hyundai Samho posted 171.5 billion won in operating income on sales of 3.9 trillion won last year. It secured 15 new shipbuilding orders worth $1.1 billion last year and this year won a $240 million worth order to build four liquefied natural gas (LNG)-fueled crude tankers from Russia’s state-run shipping company Sovcomflot.

Under the domestic holding company regulations, a daughter company of a holding company’s subsidiary must either own no or entire stake in another listed company.

To complete the reorganization making Hyundai Robotics the holding company for both shipbuilding and non-shipbuilding business entities, Hyundai Samho, a unit of Hyundai Heavy, must dispose of its entire 42.3 percent in Hyundai Mipo Dockyard or raise its stake to 100 percent - none of which are feasible.

Market analysts believe the best remaining option is to reduce the debt ratio of Hyundai Samho and later merge it under Hyundai Heavy.

By Kang Doo-soon, Moon Ji-woong, and Yoon Jin-ho

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