[Second-Generation Management Begins] ⑨ Global SeAH's Cash Flow Dries Up... Secures Funds from Acquired Companies

Holding Company 'Global SeAH'... Liquidity Ratio at 1%
From Apparel OEM to Distribution, Plant, Construction, and Paper Companies
Second Daughter Named Successor... Attention on Overseas Assets of Three Daughters

Global SeAH, which has expanded through aggressive mergers and acquisitions (M&A), is now seeking financial support from its subsidiaries. Originally founded as an apparel original equipment manufacturer (OEM), Global SeAH has risen to the ranks of large conglomerates by acquiring businesses in food and beverage, packaging materials, and even Ssangyong Engineering & Construction.

However, after Chairman Ungki Kim of Global SeAH Group appointed his second daughter, Jina Kim, as his successor and she took the helm of management last year, the group’s flagship company, SeAH Sangyong, saw its profitability sharply deteriorate due to a slump in the fashion business. At the same time, the acquired companies have also suffered continued poor performance, resulting in a significant decline in dividend income for the holding company, Global SeAH. Although the succession of Chairman Kim’s shares has not yet taken place, it appears that his three daughters are increasing their assets through a U.S. corporation.

Ungki Kim Global SeAH Chairman.

Holding Company 'Global SeAH'... Liquidity Ratio at 1%

According to the Financial Supervisory Service's electronic disclosure system on July 31, Global SeAH borrowed funds from its affiliates three times this year. In June, it borrowed 20 billion won from SeAH Sangyong, and previously, in January and February, it borrowed 50 billion won from Ssangyong Engineering & Construction and 11 billion won from Tailim Paper, respectively. Global SeAH acquired Ssangyong Engineering & Construction and Tailim Paper in 2022 and 2020, respectively, but this is the first time it has borrowed from Tailim Paper. Global SeAH stated that these borrowings will be used as 'operating funds.'

In reality, Global SeAH is facing a liquidity shortage. As of the end of last year, excluding inventories, the company’s liquid assets that could be converted to cash within a year amounted to only 5.2 billion won on a standalone financial statement basis. Although this is a slight increase from 4 billion won in 2023, cash and cash equivalents actually decreased further. During this period, cash and cash equivalents fell from 800 million won to 500 million won. In contrast, current liabilities due within one year increased by 26%, from 364.3 billion won to 458 billion won.

As a result, Global SeAH's liquidity ratio is in the 1% range. The liquidity ratio is calculated by dividing current assets by current liabilities, and a higher ratio is considered to indicate a stronger short-term payment capability. Typically, a ratio above 100% is considered sound. However, for holding companies, since they tend to have large non-current assets and rely on dividend income from subsidiaries, the liquidity ratio usually ranges from 50% to 100%. In the case of Global SeAH, however, it is judged that the company cannot operate without borrowing funds from external sources.

The holding company’s management difficulties are mainly due to a sharp decline in dividend income. As of last year, Global SeAH’s cash flow from operating activities was negative 16.5 billion won. This was largely due to a halving of dividend income, which dropped from 18.6 billion won in 2023 to 7.2 billion won last year. Global SeAH’s dividend income decreased from 33.4 billion won in 2020 to 18.6 billion won the following year, and even fell to zero in 2022 (offset by short-term borrowings).

This is due to the poor performance of some affiliates. INDF has recorded losses for three consecutive years, with an operating loss of 1.4 billion won last year. JDG INC, which operates golf courses in the United States, posted a net loss of 200 million won. SNA, which operated the golf apparel brand Tolvist, recorded a net loss of 24.8 billion won. Tolvist ended its brand business due to the sluggish golf apparel market.

STX Entech, which operates in the construction (plant) business, entered court receivership last year and was excluded from the group of affiliates. This company, a 100% subsidiary of Global SeAH, was hit hard by rising raw material costs and construction delays following COVID-19. STX Entech’s sales last year were 39.5 billion won, an 80% plunge from 205.4 billion won the previous year. Its operating loss was 40.5 billion won.

SeAH Sangyong is also recovering slowly. On a standalone basis, SeAH Sangyong’s sales last year were 1.96 trillion won, with operating profit of 83.1 billion won. This is a significant slowdown compared to sales of over 2 trillion won and operating profit of 170 billion won in 2021. In particular, Valmax Technology, in which SeAH Sangyong invested, saw its performance deteriorate even further. Last year, its sales were 26 billion won, down 37% from 41.4 billion won the previous year, with an operating loss of 6.6 billion won and a net loss of 6.8 billion won, continuing its deficit.

Global Seara Group Headquarters Building.

From Apparel OEM to Distribution, Plant, Construction, and Paper Companies

Global SeAH Group began in 1986 when Chairman Kim founded 'SeAH Sangyong' in Gongdeok-dong, Mapo-gu, Seoul, with 5 million won. The company name was created by combining the names of his eldest daughter 'Seyeon' and second daughter 'Jina.' Global SeAH grew by producing apparel on consignment for U.S. brand Gap and Japan’s Uniqlo, and by establishing global production bases in Vietnam, Guatemala, and other countries. In 2006, it entered the apparel brand business by acquiring INDF, which operates brands such as Trugen and Compagna.

Expansion into non-apparel businesses began in the late 2010s. In 2018, Global SeAH acquired the plant business of STX Heavy Industries and established SeAH STX Entech. In 2020, it entered the paper and packaging business by acquiring Tailim Packaging and Tailim Paper. In 2021, it incorporated Valmax Technology and entered the eco-friendly hydrogen energy business. In 2022, it acquired Ssangyong Engineering & Construction, strengthening its overseas plant and construction business.

As a result, since 2023, Global SeAH Group has been designated as a 'public disclosure-targeted business group' (a conglomerate group with total assets of 5 trillion won or more). Last year, the group further expanded its assets to 8.29 trillion won and ranked 61st in business group rankings by acquiring Jeonju Paper, Jeonju One Power, and Jeonju Energy.

Previously, Global SeAH Group announced a group sales target of 10 trillion won for 2020. According to the Fair Trade Commission, the group’s sales last year were 5.715 trillion won, far short of the target. A Global SeAH official explained, “Achieving 10 trillion won in sales has become difficult due to unpredictable external factors and changes in circumstances. Please interpret it as a sign of our commitment to continued growth.”

Second Daughter Named Successor... Attention on Overseas Assets of Three Daughters

Chairman Kim stepped down from the boards of Global SeAH and SeAH Sangyong last August, retreating from frontline management. Jina Kim has since led the group. After joining SeAH Sangyong in 2009, she became head of strategic planning at Global SeAH in 2015 and was promoted to group executive vice president in 2022. She became co-CEO of Global SeAH Group last August but stepped down from that position earlier this year. She currently serves as an inside director at both Global SeAH and SeAH Sangyong.

The youngest daughter, Sera Kim, is CEO of Taebum and serves as an inside director and vice president at SeAH Sangyong. Taebum is a wholly owned private company of Sera Kim, engaged in food and beverage (F&B) and real estate leasing. Among the three daughters, the eldest, Seyeon Kim, is not directly involved in management but operates a real estate company (SJD LLC) and a market research firm (JD Link) in the United States.

Chairman Kim is the largest shareholder of Global SeAH (84.8%), and his wife, Sunam Kim, holds a 12.36% stake. Among the three daughters, the eldest and second daughters, Seyeon Kim (0.59%) and Jina Kim (0.59%), hold shares in the holding company. However, the succession of Chairman Kim’s shares has not yet taken place. Notably, the three daughters jointly own a U.S. company that operates the Steel Canyon Golf Club, drawing attention to how this asset might be utilized in the succession process.