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[FOCUS] Hanwha's move to acquire Daewoo shipyard throws chairman's eldest son into spotlight

By Lim Chang-won Posted : September 27, 2022, 16:12 Updated : September 28, 2022, 07:59

[Courtesy of Hanwha Group]

SEOUL -- Hanwha Group's move to acquire Daewoo Shipbuilding & Marine Engineering, a major shipbuilder controlled by South Korea's state policy bank, threw in the spotlight the 38-year-old eldest son of group patriarch Kim Seung-youn who was credited with elevating the ranking of his business empire step-by-step through the acquisition of essential enterprises with great market potential.

The eldest son has been trained as heir to the throne. Like other offsprings of South Korea's family-run conglomerates, known as chaebol, Kim Dong-kwan has quickly climbed the corporate ladder since he joined the group in 2010 and moved to its solar business unit a year later. As a Harvard University graduate, the eldest son has outshined two younger brothers. 
  
In December 2019, Hanwha Corp., the holding company of Hanwha Group, established a new strategic division headed by Kim Dong-kwan, who set the direction of major businesses, explore new markets and find growth engines as a sure heir to a conglomerate with diversified holdings stretching from explosives and military equipment to financial services.

Data released by the Fair Trade Commission (FTA) in April 2022 listed Hanwha Group as South Korea's seventh largest conglomerate with more than 90 subsidiaries with their total assets estimated at 80.4 trillion won ($56.4 billion) at the end of 2021. The group recorded a net profit of 3.16 trillion on sales of 61.13 trillion won in 2021. In terms of assets, the size of Hanwha Group is still far behind other top conglomerates.

The 70-year-old patriarch has pushed for a marked change in the structure of his group. In July 2022, Hanwha Aerospace was allowed to absorb Hanwha Defense, a defense contractor known for K9 self-propelled howitzers and infantry fighting vehicles, and the defense business of Hanwha Corp., a manufacturing and trading company that produces munitions, navigational systems for guided weapons, and lasers.

Hanwha Aerospace, an aircraft parts maker involved in the production of homemade space rocket engines, vowed to become a global defense solution company like Lockheed Martin, a U.S. aerospace, arms, defense, information security, and technology corporation. Hanwha Aerospace is a key member of Space Hub, a group-wide team led by Kim Dong-kwan, that combines different products or services such as satellite components.

The eldest son cemented his group-wide control after being promoted to the position of vice chairman in August. A month later, Hanwha Solutions, which has adopted an aggressive approach to acquire advanced green energy technologies, was turned into a company solely engaged in solar panel and chemicals businesses in a decision to split off unrelated divisions.

The proposed acquisition of Daewoo Shipbuilding & Marine Engineering (DSME), disclosed on September 26, came on the heels of Hanwha's aggressive business restructuring that would culminate with an integrated defense business division covering air, group and marine military equipment, along with synergy in establishing an energy value chain.

Korea Development Bank (KDB), which controls a 55.7 percent stake in DSME, allowed Hanwha Group to acquire a 49.3 percent stake and management rights through a two trillion won ($1.4 billion) paid-in capital increase. KDB will receive a letter of intent from investors until October 17. Even if other investors offer better terms, Hanwha can exercise its investment priority as a preferred bidder. Hanwa aims to sign a final contract by the end of November 2022. 

KDB chairman Kang Seok-hoon described Hanwha as the best option to avoid opposition by other countries because it is not a transaction between companies of the same industry. However, market watchers are concerned about an overhang risk because KDB will still hold a 28.2 percent stake in DSME, as well as uncertainty about normalizing the debt-stricken shipbuilder.

DSME's backlog of orders stands at $28.8 billion, which is enough to keep the shipbuilder running for several years, but its accumulated debt was estimated at 10.47 trillion won compared to an asset of 12 trillion won as of June 2022. 

 

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