Han­wha sep­a­rates clus­ter mu­ni­tion busi­ness

The Korea Times - - BUSINESS - By Nam Hyun-woo namhw@ko­re­atimes.co.kr

Han­wha Corp., the de-facto hold­ing com­pany of Han­wha Group, said it will spin off its clus­ter mu­ni­tions busi­ness and set up a new com­pany, ten­ta­tively called Korea De­fense In­dus­try, which will de­velop and man­u­fac­ture prod­ucts in­clud­ing ex­plo­sives and mu­ni­tions.

In an­nounc­ing this, Han­wha Corp. cited its ef­forts to com­ply with en­vi­ron­men­tal, so­ci­etal and gov­er­nance (ESG) stan­dards.

The com­pany’s clus­ter mu­ni­tions busi­ness has been crit­i­cized by ac­tivists across the world as in­hu­mane.

In 2007, the Nor­we­gian Govern­ment Pen­sion Fund dropped Han­wha from its list of com­pa­nies to in­vest in due to this.

Since de­vel­op­ing these tools of death and de­struc­tion af­fects the rep­u­ta­tion of the en­tire Han­wha Group, the spin-off is in­ter­preted as an ef­fort to hedge po­ten­tial risks across the group in terms of draw­ing in­vest­ments from over­seas funds.

How­ever, the sep­a­ra­tion of the busi­ness would nar­row Han­wha Corp.’s busi­ness port­fo­lio, which would not be help­ful in terms of im­prov­ing prof­its.

Han­wha Corp. does not dis­close its clus­ter mu­ni­tions busi­ness sales alone, but it is said to ac­count for less than 2 per­cent of the com­pany’s to­tal sales.

Han­wha said the sep­a­ra­tion has “no re­la­tion” with the pos­si­ble suc­ces­sion of heir Kim Dongk­wan to own­er­ship of the com­pany.

Since Kim’s stake with vot­ing rights in Han­wha Corp. re­mains at 4.44 per­cent, far be­low his fa­ther, group Chair­man Kim Seung-youn, with 22.65 per­cent, spin­ning off Han­wha Corp.’s mul­ti­ple busi­nesses will save costs for the younger Kim in tak­ing con­trol of the hold­ing firm.

The com­pany’s re­cent move to spin off its clus­ter mu­ni­tions busi­ness is in line with this ap­proach, in­dus­try of­fi­cials said.

Han­wha Corp. is com­prised of four di­vi­sions — de­fense, ex­plo­sives, trade and ma­chin­ery.

The chances are slim for Han­wha Corp. to use the spin-off as a tool for the own­er­ship suc­ces­sion, given the coun­try’s Fair Trade Com­mis­sion (FTC) has al­ready been in­ves­ti­gat­ing Han­wha Group for po­ten­tial un­fair prac­tices to strengthen the younger Kim’s grip on the group.

“The ben­e­fits com­ing from the spin-off are too small for the com­pany to take on neg­a­tive pub­lic per­cep­tions of the own­er­ship suc­ces­sion,” an in­dus­try source said.

A Han­wha Corp. of­fi­cial said the spin-off of the clus­ter mu­ni­tions busi­ness has “no re­la­tion” to the own­er­ship suc­ces­sion, and it de­cided to do so to “pro­mote Han­wha Corp. share­hold­ers’ value.”

“With a grow­ing num­ber of in­vestors plac­ing more im­por­tance on cor­po­rate ESG com­pli­ance, we be­lieve the spin-off will have a pos­i­tive im­pact on the share price in the fu­ture,” the of­fi­cial said.

“The spin-off has no re­la­tion with own­er­ship suc­ces­sion, and the suc­ces­sion is­sue is a mat­ter for the fu­ture.”

Ear­lier thoughts are that since in­her­it­ing shares worth more than 3 bil­lion won is sub­ject to at least a 50 per­cent tax, hand­ing over Chair­man Kim’s stake in the com­pany to his son is not a pri­or­ity for the group.

Due to this, in­dus­try of­fi­cials said one of the most re­al­is­tic sce­nar­ios is the merger be­tween Han­wha Corp. and H So­lu­tion, a soft­ware firm con­trolled by the younger Kim.

Kim has a 50 per­cent stake in H So­lu­tion, fol­lowed by his two younger broth­ers each hav­ing 25 per­cent stakes.

Since H So­lu­tion al­ready has a 4.2 per­cent stake in Han­wha Corp., the merger and fol­low­ing stake ex­change be­tween the two com­pa­nies can raise Kim’s stake in Han­wha Corp.

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