Amid COVID-19, large conglomerates restructuring businesses

22-Sep-2020 Intellasia | KoreaTimes | 6:02 AM Print This Post

Large conglomerates are rapidly restructuring their businesses in an effort to help cushion the negative impact caused by the prolonged COVID-19 pandemic.

As corporations are struggling with looming challenges from the global recession induced by the virus pandemic, they are selling not only cash-strapped units but also cash-generative businesses to secure liquidity.

The Fair Trade Commission (FTC) said mergers and acquisitions (M&As) rose sharply in the first half of this year compared with the same period in 2019.

The FTC said the combined value of M&As, which involved local companies and that were approved by the antitrust regulator from January to June, was 18.8 trillion won ($16.2 billion), a 48.1-percent increase from the 12.7 trillion won recorded in the same period in 2019. Also, the number of M&A cases increased to 356 from 270 from a year earlier.

The increased number of M&As means that corporations are actively restructuring their business models amid the COVID-19 crisis. Due to the restructuring, conglomerates think they will be able to have new business opportunities in the post-COVID-19 era,” an industry official said.

SK Group recently sold its cosmetics material arm SK Bioland to Hyundai Department Group for 120.5 billion won. With this deal, Hyundai Department Group has gained a foothold to extend its scope into the beauty and healthcare business, while SK Group can secure liquidity to focus more on its future growth items such as mobility and semiconductors.

With more consumers buying goods online, retail companies are also downsizing their operations. Lotte Mart already announced it would close 50 stores nationwide within five years. To slash expenses, Lotte Group’s restaurant service firm Lotte GRS is reportedly seeking to unload its business of running restaurant chain TGI Friday’s.

Shipbuilding and steel production industries are also undergoing business restructuring. Hyundai Heavy Industries Group announced last month that it decided to sell its energy equipment unit Hyundai Heavy Industries Power Systems, which produces industrial boilers. Steel giant POSCO also sold its Chinese affiliate POSCO-CDPPC in June to improve its liquidity ratio.

The aviation industry, hit hardest by the pandemic, is still in a long and dark tunnel. Due to the prolonged COVID-19 pandemic, it appears inevitable that the aviation industry will undertake a hard restructuring processes.

Korean Air, the top full-service carrier, sold its in-flight catering and duty free business to private equity fund Hahn & Co for 990 billion won last month in an effort to secure liquidity.

However, Asiana Airlines, the country’s No.2 full-service airline, failed to find a new owner as local property developer HDC Hyundai Development Company scrapped its plans to acquire the cash-strapped airline.

Things are much more difficult for low-cost carriers. Compared with Korean Air, which could post operating profit thanks to strong cargo demand, the low-cost carriers are struggling with high debt ratios.

Jeju Air’s debt-equity ratio in the first half of this year was 869 percent, almost double the figure in the same period in 2019, which was at 353 percent. Jin Air also posted a debt ratio of 592 percent while it was 267 percent in the first half of 2019. Due to the shrinking profitability, conglomerates are also reducing recruitment. According to a recent survey by the Korea Economic Research Institute, 74.2 percent of the country’s top 500 companies answered they won’t post job openings or didn’t set up recruitment plans for the second half of this year.

“Given 32.5 percent of them said they didn’t draw up employment plans and 8.8 percent of them answered they will recruit zero in the first half of this year according to our February survey, concerns are rising that the job market is expected to be aggravated,” the institution said.


Category: Korea

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