Hanwha reorganization scheme masks hereditary succession design, shares strong

[Source: Hanwha Group]

A sweeping reorganization scheme Hanwha Group, South Korea’s seventh largest conglomerate strong in defense and heavy industries, unveiled last Friday proposing to place defense operations under Hanwha Aerospace and engineering operations under Hanwha Corp. is speculated to be aiming for hereditary succession as well as rationalizing businesses.

Under the outline, the group would integrate defense businesses into Hanwha Aerospace and place Hanwha Precision Machinery and Hanwha Engineering & Construction under Hanwha Corp. to enhance its influence over key operations.

The move would raise efficiency in defense, wafer equipment, and materials businesses on the façade and also aid hereditary succession.

Hanwha Corp.’s largest stakeholder is Hanwha Group Chairman Kim Seung-youn with a 22.7 percent. Kim Dong-kwan, the eldest son and CEO of Hanwha Solutions, holds 4.4 percent in the de facto holding company, while Kim Dong-won, the second son and Chief Digital Officer (CDO) of Hanwha Life Insurance, and Kim Dong-seon, the youngest and the managing director of Hanwha Hotels & Resorts, each own 1.7 percent.

Hanwha Corp.’s second-largest shareholder, Hanwha Energy, is wholly owned by the three sons – the eldest holds 50 percent, and the two younger brothers sharing 25 percent each.

According to sources familiar with the group, the three sons are in charge of different pillar business units, supported by trustworthy aides. The managerial succession to the three sons with even command over different operations is underway, according to the sources.

Hanwha Corp.’s absorption of Hanwha E&C for one can serve the purpose.

The move can prevent the firm from falling into holding category with business operation as it would have to shed cash-rich Hanwha Life Insurance if it does and also simplify the governing structure to facilitate controlling stake handover.

Hanwha has been working on business succession for years. In August last year, Hanwha Energy absorbed H Solution wholly owned by the three sons.

“The final step for leadership succession would be a merger of Hanwha Energy and Hanwha Corp. since the move would make the three sons major shareholders of Hanwha Corp. and help their command over the group operation,” an anonymous analyst said.

Meanwhile, shares of Hanwha Aerospace have turned strong to suggest investors’ approval of its strengthened business, trading at 65,100 won by midday Tuesday, almost 50 percent higher from 44,050 won on July 4. Hanwha shares added 2.3 percent Tuesday after rising nearly 9 percent over the last two trading sessions since reorganization announcement.

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