SEOUL -- Saudi Arabia's Aramco is paying up to 1.8 trillion won ($1.6 billion) for a 19.9% stake in Hyundai Oilbank, in a deal that strengthens its hold on South Korea's refining industry while also providing a welcome cash injection for Hyundai Heavy Industries Group, the struggling South Korean shipbuilder.
Aramco already owns a 63% stake in South Korea's third-largest refinery, S-Oil, and the deal will bolster its downstream presence in one of the world's biggest crude oil importing countries. Currently the South Korean refining market is dominated by SK Innovation and GS Caltex. Aramco in recent years has been moving aggressively to expand its refining capacity in Asia.
HHIG, meanwhile, is struggling to pay back debt after years of losses, a situation exacerbated by the downturn in the shipbuilding industry since the global financial crisis. More recently, the shipbuilder has sought to restore profitability by selling its noncore assets and laying off thousands of employees.
The Ulsan-based shipbuilder planned to list the refinery affiliate, which also runs a network of gas stations, on the South Korean stock market this year as part of a strategy to cut borrowing. The company's total debt reached 12.2 trillion won in September, up from 10.8 trillion won in December 2017.
That listing is likely to go ahead despite the deal, said analysts, who welcomed the stake sale. The valuation of Hyundai Oilbank at 9 trillion won was far higher than the market estimation of 7.5 trillion won, one said.
"We need to pay attention to the fact that Aramco gave Oilbank a higher valuation than S-Oil. This will lead to revaluation in Oilbank," said Han Young-soo, an analyst at Samsung Securities. "It is also positive that [Oilbank] is participating in many projects initiated by Aramco."
Shares of HHIG jumped 3.83% to 379,500 won on Monday.
South Korea's shipbuilders have suffered amid the industry's long downturn. Earlier this month, the Philippine subsidiary of Hanjin Heavy Industries & Construction filed for court protection after defaulting on loans.