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With $1.7 bil war chest, Hyundai Engineering joins bidding race for KG ETS assets Korean builder begins to invest in future growth ahead of planned IPO next year

Translated by Ryu Ho-joung 공개 2021-11-19 09:03:35

이 기사는 2021년 11월 19일 08:03 더벨 유료페이지에 표출된 기사입니다.

Hyundai Engineering has entered the race to acquire waste management company KG ETS’s energy resources and new materials units, joining other major South Korean corporations and private equity firms that have expressed interest.

Six or seven potential buyers submitted preliminary bids for the assets earlier this week, according to sources. Among them are a consortium of Taeyoung Group and US buyout firm KKR, Hyundai Engineering and homegrown private equity firms E&F Private Equity and Eugene Private Equity.

The bidding war is heating up with the participation of Hyundai Engineering, which has ample cash to support its potentially high bid price.

The Seoul-based construction company had cash liquidity of 1.94 trillion won ($1.65 billion) including 1.2 trillion won in short-term investments at the end of September this year on a consolidated basis. The figure is slightly down from 2.31 trillion won at the end of 2020, but has been stable at around 2 trillion won since 2018 when the level was first breached.

Gross debt has continued to decline, from about 450 billion won in 2015 to 141.2 billion won at the end of September 2021. Net debt – calculated as the difference between cash liquidity and gross debt – stood at 1.8 trillion won, making Hyundai Engineering one of the South Korean builders with the strongest cash position.

However, the company’s net cash flow from operating activities turned negative in the first three quarters of this year to 234.8 billion won despite a 28% growth in net profit in the same period. This was largely due to a negative operating cash flow of 151.3 billion won, resulting from a large increase in work-in-progress, which represents the outstanding billable amount to customers.

Hyundai Engineering recorded an 887.8 billion won work-in-progress at the end of September this year, compared to 430.2 billion won at the end of 2020, with its plant construction projects in Indonesia and Poland accounting for the largest portion of the amount. The percentages of completion of the projects are 41% and 63%, respectively.

An official at Hyundai Engineering blamed the timing of milestones for those balances, saying that they are not uncollectible.

Since its merger with Hyundai Amco in 2014, Hyundai Engineering has expanded its business beyond plant design to include construction and housing. With most of profits retained internally, the builder has been in a strong financial position with almost zero long-term debt in the past years – a factor in favor of its valuation when the company goes public next year.

However, this also means that Hyundai Engineering has been less active in investing in new business opportunities than its rivals, which have stepped up efforts to find future growth drivers in recent years.

In an effort to remove doubts about its future growth, Hyundai Engineering in September revealed plans to expand investments with a focus on the energy and environmental sectors in the mid to long-term. Its interest in acquiring KG ETS’s assets is also part of that strategy.

“Hyundai Engineering’s strong cash position is a positive, but the company also needs to show investors how its growth can be sustained in the future,” an industry insider said. (Reporting by Jin-young Ko)
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