Market insiders are waiting to see if Hanwha Solutions will succeed in splitting off its Advanced Materials division, with the deal likely to hinge on whether it provides a possible exit route for a financial investor and protection against downside risk.
The breakup has caused some surprise, as Hanwha Advanced Materials was only merged in January with Hanwha Chemical and Hanwha Q Cells in a deal that created Hanwha Solutions. Hanwha Group has been tapping financial investors since June and set the deal structure through negotiations.
Hanwha Group wants to create a new corporation for the Advanced Materials division that will own 100% of Hanwha Solutions’ production plants in the U.S., China and Mexico and a factory in Ningbo, China. It aims to sell a 49% stake in the company to a private equity firm and use the proceeds to repay Hanwha Solutions’ debt and bolster its finances.
Private equity firms are positive on Advanced Materials’ growth potential and view it an attractive opportunity for investors, excluding buyout funds. The company is expanding its footprint in the global market by producing lightweight composite materials and thermoformable components, highly efficient advanced film for solar energy, and high-performance coating films for mobile phones and display.
Hanwha Group plans to turn its factory in Ningbo and manufacturing facilities in the U.S., China, Europe and Mexico into subsidiaries of the corporation, raising expectations that the new company will gain growth momentum after the split-off. Hanwha Group spent approximately 390 billion won ($344 million) building its polyvinyl chloride plant in Ningbo city.
The group has been in talks with several private equity firms, but has reportedly been unable to reach an agreement on prices and terms and conditions. It is still looking for a financial investor and recently gave exclusive negotiation rights to a private equity firm, which has formed a consortium. The due diligence process was to start this month, but has been delayed.
A successful deal depends on whether Hanwha Group and the financial investor can agree on a shareholders agreement, which includes provision for the group to guarantee investment returns or buy back the stake.
“The negotiation will accelerate if Hanwha Group provides the financial investor with protection against downside risk,” said an industry source. (Reporting by Hye-ran Kim)