As Hanwha Group bought nearly 5% equity in Korea Aerospace Industries (KAI), the possibility of KAI's privatization is resurfacing. Debate over KAI's privatization has recurred several times since the 2000s but failed each time. While there has been no concrete government move yet on selling KAI equity, attention is on whether Hanwha Group's latest equity purchase in KAI will end with strengthened cooperation between the two companies or lay the groundwork for privatization.
Hanwha Aerospace said in a business report disclosed on the 16th that it bought 4.41% equity in KAI in Oct. last year. Adding the 0.58% equity in KAI that Hanwha Systems, a Hanwha Aerospace subsidiary, purchased in Nov. last year, Hanwha Group's KAI equity comes to 4.99%. That is 4,864,000 shares, worth 929.3 billion won based on the previous day's closing price of 191,200 won. With this acquisition, Hanwha Group has reportedly become KAI's No. 4 shareholder.
It has been about seven years since Hanwha Group held KAI equity. Hanwha Aerospace sold 4.01% (3.9 million shares) of KAI equity in Jan. 2016, and in July 2018 unloaded 5.99% (5,847,511 shares) in an after-hours block deal. Hanwha Group emerged as a strong candidate to acquire KAI when it purchased Samsung Techwin, which held 10% equity in KAI, in 2015. But as an inter-Korean détente took shape and interest in defense industry restructuring waned, it disposed of all KAI equity.
◇ KAI privatization attempts repeat with every change of administration
Debate over KAI's privatization has been raised repeatedly since the early 2000s. KAI was launched in 1999, right after the foreign exchange crisis, by integrating the aviation divisions of Samsung Aerospace, Hyundai Space and Aircraft, and Daewoo Heavy Industries. In 2003, it nearly reached acquisition when Korean Air Lines signed a memorandum of understanding (MOU) to buy the entire 28.1% equity in KAI held by Daewoo, but the deal ultimately fell through due to differences over acquisition terms and other issues. When the Daewoo Group collapsed, the Korea Development Bank became the largest shareholder after receiving KAI shares in lieu of loan repayment.
With government equity exceeding 30%, it is effectively a state-run company. As a result, every change of administration brought a change of CEO. Of the eight CEOs to date, only one came from inside the company. Former CEO Kang Goo-young conveyed his intention to resign on the first day of the new government's launch in July last year, and after eight months, the nominee for new CEO was Kim Jong-chul, former director general for Defense Technology Protection at the Defense Acquisition Program Administration, who worked as vice chair of the Smart Strong Army Committee in Lee Jae-myung's 20th presidential campaign.
Government equity exceeds 30%, making it virtually the same as a public enterprise. Accordingly, the CEO changed every time the administration changed. Of the eight CEOs so far, only one was promoted from within. Former CEO Kang Goo-young conveyed the intention to resign on the first day of the new government's launch in July last year, and the new CEO candidate named after eight months is Kim Jong-chul, former director general for Defense Technology Protection at the Defense Acquisition Program Administration, who worked as vice chair of the Smart Strong Army Committee in Lee Jae-myung's 20th presidential election campaign.
◇ Will Hanwha Group move to buy more KAI equity? Privatization moves not yet
Hanwha Group explained its repurchase of KAI equity as "to strengthen export competitiveness in the aviation and space sectors, and for future business cooperation," but the industry expects privatization talks for KAI to rev up again. An industry official said, "If companies are tied by equity, their relationship can be stable, but the current level of cooperation is possible even without equity." Another industry official said, "It is unlikely Hanwha Group bought equity with the intention of stopping here," adding, "It appears likely to monitor developments such as privatization talks and secure additional equity."
However, it is expected to take time before KAI privatization talks gain full steam. An industry official said, "As far as I know, the current government has not yet begun reviewing KAI privatization." On top of that, the recent sharp rise in KAI's share price is a burden for prospective buyers, including Hanwha Group. As of 10:25 a.m. that day, KAI shares were at 200,500 won. An industry official said, "If KAI privatization begins, other defense companies besides Hanwha Group will show interest."