Hyundai Group in Talks to Sell Stake in Logistics Unit to Orix

Hyundai Masan, Image courtesy HMM

By Kyunghee Park and Chris Cooper

June 9 (Bloomberg) — Hyundai Group, the South Korean conglomerate planning to raise 3.3 trillion won ($3.2 billion) from asset sales to ease a cash crunch, is in talks to sell a stake in its logistics unit to Orix Corp. in Japan.

The details, price and how the stake will be sold are under discussion, group spokesman Lee Jun Ki said by phone today. Hyundai Group, one of South Korea’s so-called chaebols, will sell part of its stake in Hyundai Logistics for 650 billion won to a special-purpose company that will be formed by Hyundai Merchant Marine Co. and Orix, Seoul Economic Daily reported, citing unidentified officials.

The group is selling its entire stake in Hyundai Securities Co., properties and businesses as a slump in the global shipping industry has caused its main Hyundai Merchant Marine unit to struggle to repay maturing debt. Orix, whose operations include leasing, lending and real estate, has been expanding abroad as a shrinking population limits the domestic growth potential of Japanese businesses.

“Orix has made it clear that Asian investments are one of the growth areas they see,” said Makarim Salman, head of Japan financial research at Jefferies Group LLC. “They probably see some synergies with their leasing and logistics businesses.”

Atsushi Horii, a spokesman at Tokyo-based Orix, declined to comment on the deal.

Orix declined 0.5 percent to 1,653 yen at the close in Tokyo trading. Shares of Hyundai Merchant, which made a third straight annual loss in 2013, dropped 0.5 percent to 9,050 won in Seoul.

Planes and Ships

Orix owns Orix Aviation Systems Ltd., which leases planes to carriers around the world, and Orix Maritime Corp., which charters ships. It has built several logistics centers in Japan.

Hyundai Group has raised 1.91 trillion won from selling assets, including its liquefied natural gas shipping operations. Orix expressed interest in buying Hyundai Securities and its two financial units, Yonhap News Agency reported May 30.

Hyundai Group may raise about 300 billion won from selling the Hyundai Logistics stake, and the group will have managerial rights to the unit after the sale, Seoul Economic Daily said.

Hyundai Merchant owned 47.7 percent of Hyundai Logistics at the end of March and Hyundai Global Co. 24.4 percent, according to its financial statement. Group Chairwoman Hyun Jeong Eun has 12 percent of the logistics unit.

Maturing Bonds

Hyundai Merchant has 580 billion won worth of bonds maturing in 2015, compared with 80 billion won this year. The company, which had 516 billion won of cash and near-cash items at the end of the first quarter, may report another loss for 2014, according to data compiled by Bloomberg.

Hyundai Group was founded in 1947 by Chung Ju Yung. Hyundai Motor Group was spun off in 2000 amid efforts to reduce the power of the chaebol business groups. Hyundai Heavy Industries Group, which owns shipbuilders and a refiner, separated in 2002, while a department store unit left in 1999.

The chaebols often control units through a web of cross- shareholdings. Hyundai Merchant is the biggest shareholder of 11 of Hyundai Group’s 20 subsidiaries. Hyundai Elevator Co. is the biggest shareholder of Hyundai Merchant and Hyundai Logistics is the second biggest for Hyundai Elevator.

Orix in December agreed to sell its entire 71.9 percent stake in STX Energy Co., a South Korean company that operates power plants and was sold to help raise funds for its cash- strapped parent STX Group. The stake was sold to GS Holdings Corp. and LG International Corp. for 630.7 billion won.

–With assistance from Takako Taniguchi in Tokyo.

Copyright 2014 Bloomberg.