Woongjin Group’s announcement that it would unload its water purifier unit, Woongjin Coway, sparked mixed reactions among investors and analysts on Tuesday, as demonstrated in the steep price changes of related shares.

Woongjin Holdings shares shot up 14.9 percent to close at 7,250 won on Tuesday, reflecting a positive reaction to the plan to sell off Coway. Woongjin Chemical also climbed 13.46 percent to 1,180 won and Woongjin Energy surged 14.87 percent to 8,190 won.

The chemical and energy affiliates got a boost on the stock market thanks largely to Woongjin Group’s plan to improve financial conditions for its affiliates and focus more on the solar energy business and investment.

Woongjin Coway, in contrast, fell 4.76 percent to 38,000 won, suggesting that the company would lose out in the group’s reorganization plan.

Woongjin Group on Monday said it would sell Woongjin Coway, the country’s largest water purifier manufacturer and the group’s undisputed cash cow. Coway’s sales took up about 27 percent in the conglomerate’s total output last year. The company also commands a share of more than 50 percent in water purifier market.

The sharp increase of share prices for Woongjin’s energy units came as the group’s financial status worsened following the acquisition of Kukdong Engineering and Construction. The group’s heavy investment in the fledgling solar energy business also sapped its working capital.

Woongjin Holdings is estimated to have a loan worth 900 billion won as of the end of December. The group attempted to sell some of its assets in a bid to bolster its cash flow.

As Woongjin Coway is expected to fetch as much as 1 trillion won, investors seemed to be relieved that financial crisis is now unlikely for the group, a view that led to strong rallies for Woongjin group shares.

Coway is a parent firm of Woongjin Chemical, but the group decided not to sell off the chemical affiliate, which had a positive impact on its share price on Tuesday. 

“Woongjin Coway’s sales price will affect Woongjin Holdings and Woongjin Energy in the short term, but the group’s possible partnership with an international firm in the solar power business will be the key factor for its long-term outlook,” said Kim Dong-jun, analyst at Shinhan Investment Corp.

Analysts said the sharp fall of Coway shares is a reflection of uncertainties surrounding the potential buyer. A general view, though, is that the company is a frontrunner in the business category, especially given its firm grip on purifier distribution channels, and there will be buyers willing to pay due price to secure the profitable company.

Another factor to consider is that Woongjin Group’s formal announcement means Coway won’t be required to extend financial help to its affiliates, opening up a new business opportunity for prospective buyers.

“The share price of Coway will be moved within a relatively tight range for a while as it takes some time to get new buyers to line up,” said Lee Sang-ku, analyst at Hyunidai Securities.

Potential buyers include Coway’s direct competitors in the water purifier business and conglomerates interested in jumping into the sector.

But it remains uncertain whether Coway could play as a unit that could bring tangible synergistic effect to conglomerates other than Woongjin. Doubt is also raised as to whether the unit sale will proceed as planned.

“Woongjin’s plan to sell off its key unit is a big surprise and there’s no buyer yet, which will continue to cause confusion on the stock market,” said Ahn Ji-young, analyst at IBK Investment & Securities.

Under the current plan, Woongjin Holdings will unload its 28.4 percent stake in Coway. A total of 31.7 percent stake of Coway, including those owned by large investors will be on the M&A market.

Preferred bidders will be determined by the end of March and the entire sales process will be wrapped up by June, Woongjin said.

By Yang Sung-jin
(insight@heraldcorp.com)