이 기사는 2021년 09월 14일 07:55 thebell 에 표출된 기사입니다.

Doosan Infracore’s takeover by Hyundai Heavy Industries Group through its affiliate, Hyundai Genuine, is one of the most notable deals to date in South Korea’s construction equipment market. With the deal completed, the conglomerate has become the dominant player in the domestic market while increasing its market share abroad.

But at the same time, the deal has resulted in an increase in the conglomerate’s reliance on public funds and may lead to further deterioration of its financial position.

The conglomerate two years ago agreed to acquire Daewoo Shipbuilding & Marine Engineering, one of the country’s top three shipbuilders. The acquisition, which is still subject to the regulatory approval process, will be partly funded by the proceeds from a 1.2 trillion won ($1 billion) issue of redeemable convertible preferred shares bought entirely by the state-controlled Korea Development Bank (KDB).

Additionally, Hyundai Genuine earlier this year sold convertible bonds worth 400 billion won to KDB Investment, a wholly owned subsidiary of KDB, at a coupon rate of 4.35% in order to fund the takeover of Doosan Infracore.

Consequently the conglomerate’s financial position has weakened, with the debt ratio of Hyundai Heavy Industries Holdings, the conglomerate’s holding company, jumping from 116.4% at the end of 2019 to 166% at the end of June this year on a consolidated basis.

The deterioration of the financial profile comes at a time when the conglomerate’s need for cash is growing. Doosan Infracore last Friday held an extraordinary shareholders meeting to approve a capital reduction without refund despite a backlash from minority shareholders. This was a step prior to a planned rights issue of up to 800 billion won. To prevent its stake from being diluted, Hyundai Genuine will need to invest an additional 240 billion won in Doosan Infracore.

In addition, Doosan Infracore spent cash of about 210 billion won on partly funding the purchase of shares in its Chinese unit from financial investors in a 305 billion won deal intended to remove litigation risks. The cash outflow represents about a third of 691 billion won, which Hyundai Genuine paid for the construction equipment manufacturer.

Hyundai Heavy Industries Holdings previously injected 350 billion won into Hyundai Genuine, but the funds have been almost entirely exhausted after the acquisitions of Doosan Infracore and the parts division of Hyundai Core Motion. It is likely that Hyundai Genuine will take on additional debt given the company’s plan to further grow its size.

This could exacerbate the overall financial profile of Hyundai Heavy Industries Group. The conglomerate will need to hope for strong synergies from the acquisition of Doosan Infracore and stable cash generation from its existing businesses to avoid a significant deterioration in its financial health. (Reporting by Ki-soo Park)