Korea Ratings Corporation: "HD Hyundai Heavy Industries and Hyundai Mipo Merger Seen as Positive for Consolidating Business Capabilities"

On August 28, Korea Ratings Corporation assessed the merger decision between HD Hyundai Heavy Industries and HD Hyundai Mipo as "positive," stating that it would allow the companies to consolidate their business capabilities. The agency also projected that the merged entity would maintain a strong level of business profitability and financial stability going forward.

Previously, HD Korea Shipbuilding & Offshore Engineering, the intermediate holding company for shipbuilding under the HD Hyundai Group, announced a business restructuring ahead of launching the Korea-US shipbuilding cooperation project called the MASGA (Make American Shipbuilding Great Again) Project. The main point of the restructuring is to merge two of its three shipbuilding affiliates, HD Hyundai Heavy Industries and HD Hyundai Mipo, into a single entity, which will relaunch as the unified HD Hyundai Heavy Industries this coming December.

In its related report released the same day, Korea Ratings Corporation commented on the impact of the merger on the creditworthiness of the surviving entity, HD Hyundai Heavy Industries, stating, "The expansion of construction capacity (CAPA) and improved operational efficiency of production facilities will strengthen the business foundation of the defense sector and increase the company's scale."

The agency further noted, "Considering the integration synergies in the eco-friendly ship and special-purpose vessel markets, this merger and business restructuring are expected to have a positive impact on HD Hyundai Heavy Industries' creditworthiness in the mid- to long-term." However, it added, "As shipbuilding through overseas subsidiaries is expected to increase, it will be important to verify whether production efficiency and operating profitability can be secured locally, as well as to monitor changes in financial burdens related to expanded investments."

Korea Ratings Corporation also stated, "Although HD Hyundai Mipo's profitability is somewhat lower than that of HD Hyundai Heavy Industries, HD Hyundai Heavy Industries' sales exceed those of HD Hyundai Mipo by more than three times, and given the improvement trend in HD Hyundai Mipo's operating performance, the merged entity is expected to maintain strong business profitability and financial stability."

The agency plans to monitor the smooth progress of all procedures leading up to the merger date of December 1. It specifically pointed out that the scale of the exercise of appraisal rights could become a variable affecting the merged entity's financial structure. Korea Ratings Corporation stated, "For the merged entity, we will focus on monitoring the extent to which the profit base in the special-purpose vessel sector is strengthened after the merger, as well as the successful operation of overseas shipyards and the level of control over financial burdens stemming from expanded overseas investments."