As Hoban Industry, the second son's company of Hoban Group, moves to convert into a holding company through a physical split, some are raising the possibility of an initial public offering (IPO) for Hoban Construction, the eldest son's company. It means they would unwind the equity ties with Hoban Industry to separate the affiliates, and Hoban Construction would pursue an independent IPO. Hoban Construction pushed for an IPO starting in 2018 but temporarily halted it due to the spread of the COVID-19 pandemic. The view in the financial investment industry is that this effort could resume.
◇ Possibility of reviving the IPO prepared since 2018
In the financial investment industry, there is also talk that Hoban Construction could pursue an IPO, taking Hoban Industry's conversion into a holding company as a catalyst. Hoban Construction's IPO is a long-cherished wish of Hoban Group. In Oct. 2018, Mirae Asset Daewoo and KB Securities were named as joint lead managers, with DAISHIN SECURITIES as joint manager, to prepare for a listing on the Korea Composite Stock Price Index (KOSPI).
At the time, Hoban Construction was moving to merge with its core affiliate Hoban Construction Housing (formerly Hoban). After selecting the IPO underwriting syndicate, Hoban Construction absorbed Hoban Construction Housing (formerly Hoban) in Dec. 2018, expanding its scale, and Kim Dae-heon, the eldest son of Hoban Group, became the largest shareholder. With the merger of Hoban Construction Housing, which ranked 13th in the construction capability evaluation at the time, and Hoban Construction, which ranked 16th, the ranking rose to 10th in 2019, expanding the corporations' clout. Because of this, there were even projections that it could receive a corporate value of more than 3 trillion to 4 trillion won through an IPO. The financial investment industry's analysis at the time was that they sought to ride the momentum of the expanded scale and raise funds via an IPO to enter new businesses.
Then in Feb. 2020, personnel for the IPO were dispatched to Hoban Construction's headquarters to work on filing a preliminary review application with the Korea Exchange. However, as the stock market plunged due to the spreading COVID-19 at the time, the listing dream had to be shelved.
A financial investment industry official said, "The ongoing change in Hoban Group's governance structure could directly or indirectly affect the push for an IPO by Hoban Construction, the eldest son's company." However, Hoban Group's position is that Hoban Construction's IPO will not materialize visibly in the short term. A Hoban Group official said, "We are not currently planning an IPO for Hoban Construction," adding, "But we have not completely closed the door on the possibility."
Hoban Construction is currently 76.09% owned (42,085,960 shares) by Chair Kim Sang-yeol, President Kim Dae-heon, and others, and the Hoban Cultural Foundation and the Hoban Scholarship Foundation (9.21%) also hold equity.
◇ Possibility of securing firepower for affiliate separation as a subsidiary of Hoban Industry
Another reason Hoban Industry's physical split is drawing attention is that this physical split could serve as groundwork for Hoban Group's affiliate separation. Hoban Industry has eight subsidiaries, including Taihan Cable & Solution and Hoban TBM (TBM).
In particular, Hoban TBM (TBM), whose main business is civil engineering, is a company with rapid sales growth. Its sales, which were 69.097 billion won at the end of 2023, jumped 14.4% in one year to 79.096 billion won last year. Hoban TBM is a corporation strong in the TBM method, a construction technique that efficiently excavates underground space using advanced tunnel boring machines (TBM). It can perform core tasks in every phase of tunnel construction, including tunnel excavation, muck removal, and reinforcement. Because of this, there is a high possibility its corporate value will rise in the future amid processes such as the expansion of the Metropolitan Express Railway (GTX). Previously in 2020, Hoban TBM also won a 102.9 billion won "Gripper TBM (Gripper Tunnel Boring Machine)" project for Section 5 of the GTX A line.
The rising equity value of subsidiaries such as Taihan Cable & Solution, which is already listed, and Hoban TBM, which has listing potential, is directly tied to Hoban Group's affiliate separation. The largest shareholder of Hoban Industry is Executive Director Kim Min-seong, the second son of Hoban Group Chair Kim Sang-yeol. Kim holds 41.99% equity (450,000 shares) in Hoban Industry. In addition, Hoban Construction, where Kim's older brother, Hoban Group President Kim Dae-heon, is the largest shareholder (54.73% equity ratio), also holds 11.36% equity (121,796 shares) in Hoban Industry, and Hoban Property also holds 50,000 shares (4.66%) of Hoban Industry equity.
Hoban Property is a company where Hoban Property President Kim Yun-hye, the eldest daughter of Chair Kim Sang-yeol, holds 31% equity. In effect, the groups controlled by the chair's eldest son and eldest daughter each hold some equity in Hoban Industry, where their younger brother is the largest shareholder. Because of this, the prevailing view is that, in the long term, Hoban Industry will seek affiliate separation from the older brother and sister.
For the affiliate separation, Hoban Industry must buy back the 171,796 shares (16.02%) of Hoban Industry equity held by Hoban Construction and Hoban Property. For this reason, the financial investment industry expects that, after Hoban Industry's conversion into a holding company, it will seek to secure cash through IPOs of Hoban Industry and its subsidiaries. A financial investment industry official said, "Hoban Industry's conversion into a holding company will lead to a rise in the corporate value of Hoban Industry and its affiliates and prepare firepower for purchasing the equity held by Hoban Construction and Hoban Property."
Experts also expect that, in the long term, Hoban Group will undergo affiliate separation. It means the three children of Chair Kim Sang-yeol will ultimately chart independent paths for survival.
Seo Ji-yong, a professor in the business administration department at Sangmyung University, said, "Taking this conversion into a holding company as a trigger, there is a possibility of pursuing business structure reorganization, discovery of new businesses, and affiliate separation." Park Sang-in, a professor at the Graduate School of Public Administration at Seoul National University, also said, "To bequeath assets in partitions to the children, affiliate separation is an unavoidable structure," adding, "The easiest way to carry out affiliate separation is conversion into a holding company, which offers various benefits such as deferring taxation in stock exchange among subsidiaries and enabling the use of treasury shares."
Under the current tax law, when converting into a holding company, benefits such as deferral of capital gains tax are provided in the process of shareholders acquiring holding company shares; for this reason, conversion into a holding company can be used as a method for affiliate separation and governance restructuring.