[Their Own Wealth Succession] Harim② Half of the Profit from Yangjaedong Logistics Complex Development Goes to the Owner

Harim's Core Growth Engine... Trillion-Won Profit Expected if Development Succeeds
Existing NS Shopping Shareholders' Stakes Reduced Due to Governance Restructuring

[Asia Economy Reporter Hyungsoo Park] Harim Group, which completed its governance restructuring last year, is accelerating its real estate development business, considered a core growth engine. Harim Holdings recently invested 30 billion KRW in its wholly owned subsidiary, Harim Industry. Harim Industry plans to use this money as operating funds.

Until just a few months ago, Harim Industry was a grandchild company under Harim Holdings, but as a result of the recent governance restructuring, it became a subsidiary of Harim Holdings. Harim Holdings made NS Shopping a wholly owned subsidiary, then split it into a business company and an investment company, and absorbed the investment company through a merger. Five grandchild companies controlled through NS Shopping, including Harim Industry, were converted into subsidiaries.

Harim Industry is promoting the Seoul Yangjae-dong Urban Advanced Logistics Complex project, which can be considered a core growth engine of Harim Group. Kim Jang-won, a researcher at IBK Investment & Securities, explained, "In real estate development projects that may require substantial investment funds, there was a possibility of violating holding company requirements when it was a grandchild company. Elevating it to a subsidiary directly influenced by the holding company means that business decisions and speed can be faster."

He added, "Since the results of the new growth engine are directly linked to the holding company, profitability will be actively considered alongside growth when making decisions. Considering the unfavorable economic environment, even if the project cannot proceed quickly, many preparatory processes will be undertaken to reduce trial and error."

With the governance restructuring, the number of shares of Harim Holdings increased from 92.34 million to 112 million shares. This was the result of issuing Harim Holdings shares to existing shareholders after making NS Shopping a wholly owned subsidiary early last year. NS Shopping shares were converted at a rate of 1.41 Harim Holdings shares per 1 NS Shopping share.

After making NS Shopping a 100% subsidiary, Harim Holdings split it into distribution business and investment business divisions. The investment business division, NS Holdings, was merged. As a result, Harim Industry, which was a grandchild company, became a subsidiary.

Various interpretations have emerged regarding the inclusion of Harim Industry as a subsidiary. When Harim Holdings merged with NS Holdings, it was expected to establish a single holding company system to improve management efficiency. Expectations grew that the advanced logistics complex project, which is anticipated to require over 5 trillion KRW in large-scale project costs, would be actively promoted.

Previously, Harim Group purchased the 94,949㎡ cargo terminal site in Yangjae-dong for 452.5 billion KRW in 2016 and submitted a letter of intent to invest to the Seoul Metropolitan Government in 2018. However, Seoul City opposed the project, stating it conflicted with the city's development direction, causing the urban advanced logistics complex project to stall. Harim Group filed a public interest audit request with the Board of Audit and Inspection in January 2021. In August 2021, the Board issued a cautionary disposition to Seoul City, judging that the city caused confusion in policy promotion and required compliance with non-binding guidelines.

Although administrative procedures remain and challenges such as funding need to be resolved, the development profits from establishing the advanced logistics complex are expected to reach trillions of KRW. Harim Holdings can enjoy the development profits from the Yangjae-dong development project in the form of dividends and other means. Chairman Kim Hong-guk and his eldest son Junyoung secure about half of the development profits that flow into Harim Holdings.

In contrast, the rights to development profits have increased compared to when Harim Industry was a grandchild company before the governance restructuring. Conversely, general shareholders of NS Shopping before the restructuring saw their rights to development profits shrink during the split and merger process. Even if NS Shopping shareholders raise issues, there is no guarantee that the development will succeed and generate profits, so it is not easy to assess the scale of rights or property damage.