[비즈한국] The Kim Keon-hee special investigation team (Special Prosecutor Min Joong-ki) summoned and questioned HS Hyosung480860 Vice Chairman Cho Hyun-sang on the 4th. This is because HS Hyosung funds were funneled into IMS Mobility, a company where Kim Ye-seong, known as the 'butler' for First Lady Kim Keon-hee, served as an executive. In 2023, HS Hyosung affiliates invested 3.5 billion won into the 'Oasis No. 3 JD New Technology Investment Association (Oasis Fund),' which in turn invested in IMS Mobility. This has sparked allegations that HS Hyosung made the investment with former President Yoon Suk-yeol in mind. With judicial risks emerging, there are concerns that this could negatively impact HS Hyosung's new business ventures.
HS Hyosung Searches for Solutions to Worsening Profitability
Hyosung004800 Group carried out a spin-off last year, reorganizing into a two-holding company structure: Hyosung Corporation and HS Hyosung. Hyosung Group Chairman Cho Hyun-joon (57) leads Hyosung Corporation, while his younger brother, Vice Chairman Cho Hyun-sang (54), leads HS Hyosung.
Vice Chairman Cho Hyun-sang has been working to reshape HS Hyosung's business. HS Hyosung Advanced Materials298050, a key subsidiary, established a Future Strategy Office last year. The office is known to focus on securing future growth engines such as carbon fiber, secondary batteries, and biotechnology. Last year, HS Hyosung Advanced Materials invested in companies including Belgian cathode material firm Umicore and biotech firm Adzin.
However, the recent performance of HS Hyosung Advanced Materials has been lackluster. Revenue increased by 1.15% from 1.6773 trillion won in the first half of last year to 1.6966 trillion won in the first half of this year. Conversely, operating profit fell by 17.26% from 130.3 billion won to 107.9 billion won during the same period. The debt-to-equity ratio rose by 35.25 percentage points (p) over six months, from 230.14% at the end of last year to 265.39% at the end of June this year.
The future outlook for HS Hyosung Advanced Materials is not entirely positive either. Kim Young-hoon, a senior analyst at Korea Ratings, analyzed, "While the new materials (aramid and carbon fiber) business has shown excellent profitability thanks to high market demand growth, segment profitability has recently declined due to falling unit prices caused by capacity expansions by competitors." He added, "Although revenue is expected to grow due to production capacity increases, profitability is expected to weaken somewhat as competition becomes more intense than in the past." Continued deterioration in profitability could negatively affect investments in new businesses.
HS Hyosung Advanced Materials appears to be finding its own countermeasures. It is currently in the process of selling its tire steel cord business unit. Proceeds from the sale are reportedly planned for use in improving financial structure and investing in new businesses. On July 28, HS Hyosung Advanced Materials announced, "We have selected Bain Capital as the preferred bidder for the sale of the tire steel cord business and notified them accordingly," adding, "Specific details will be decided through negotiations with the preferred bidder."
The investment banking (IB) industry expects the sale price to be in the mid-1 trillion won range. If the sale is completed successfully, it is expected to be a significant boost to HS Hyosung Advanced Materials' finances. Senior analyst Kim Young-hoon assessed, "While the size and profit-generating capacity will decrease upon the sale of the tire steel cord business, there is a possibility that the proceeds will be used to expand business areas and improve the financial structure."
Emerging Judicial Risks: A Brake on New Businesses?
Amidst these developments, Vice Chairman Cho Hyun-sang was recently questioned by the prosecution regarding suspicions involving First Lady Kim Keon-hee. Four HS Hyosung affiliates—The Class Hyosung, The Premium Hyosung, Shinsung Automotive, and Hyosung Toyota—invested a total of 3.5 billion won in the 'Oasis Fund' created by Oasis Equity Partners in 2023. The Oasis Fund subsequently invested 18.4 billion won in IMS Mobility. IMS Mobility is a place where Kim Ye-seong, identified as the 'butler' for First Lady Kim Keon-hee, was involved in its founding and served as an executive. This has led to allegations that HS Hyosung and the Oasis Fund invested in IMS Mobility with former President Yoon Suk-yeol in mind.
The year 2023, when the HS Hyosung affiliates invested in the Oasis Fund, was before the formal separation of Hyosung Corporation and HS Hyosung. However, the four affiliates that invested in the Oasis Fund were already under the control of Vice Chairman Cho Hyun-sang in 2023. ASC and Shindongjin, where Vice Chairman Cho was the largest shareholder, were the largest shareholders of those four affiliates. The Kim Keon-hee special investigation team summoned and questioned Vice Chairman Cho Hyun-sang on the 4th. On that day, Vice Chairman Cho Hyun-sang did not respond to questions from reporters asking about the circumstances behind the Oasis Fund investment.
With Vice Chairman Cho Hyun-sang's judicial risks emerging, there are concerns that HS Hyosung's new business ventures could hit a snag. A business world official stated, "Large-scale mergers and acquisitions (M&A) or investments are heavily influenced by the opinions of the largest shareholder or the leader," adding, "It is difficult to proceed with investments quickly if the leader is absent or in a situation where they cannot focus on management."
There is a counterargument that the special investigation will not have a major impact on HS Hyosung's new businesses. Another business official analyzed, "In a company of a large conglomerate's size, not all employees are focused solely on defending against judicial risks, and the teams in charge of new businesses operate separately," adding, "Unless the leader is immediately detained, I don't think the situation will change drastically."
The crux of the investigation is whether the investment was made in exchange for favors. Coincidentally, Vice Chairman Cho Hyun-sang was embroiled in a controversy in 2023 regarding the holding of affiliate shares under borrowed names. In addition to HS Hyosung, Shinhan Bank, Kakao Mobility, Kiwoom Securities, and Korea Securities Finance Corp. also invested in the Oasis Fund, and all companies involved have stated that there was no quid pro quo for their investments.
An official from HS Hyosung stated, "The investment was made after obtaining information through normal channels, considering the relevance to automotive businesses such as the car rental and vehicle delivery services," adding, "The claim that we invested in a shaky company to lobby is far from the truth. It has absolutely nothing to do with lobbying." The official added, "The person mentioned as the First Lady's butler was in a position that could not be known at all at the time of the investment."