■ Securing a base for power cable production in China as a part of ‘glocalization’
■ Planning to transform it into a major general cable manufacturer by creating synergies with LS Cable
■ Building a complete business portfolio with existing affiliates in Wuxi (無錫), Tianjin (天津) and Shanghai (上海), China
LS Cable announed on September 1 that it entered into an agreement with China’s Yongding (永鼎) Group for the purchase of Hubei Yongding Hongqi Electricity (湖北永鼎红旗電氣), a power cable maker. LS Cable acquired 75.14% of outstanding equity in Hongqi Electricity owned by the Yongding Group for RMB109 million (approx. KRW20 billion). The contract was signed on August 31 in the main office of the Yongding Group in Suzhou (蘇州) by Jong-ho Sohn, President of LS Cable, and Mo, Lin-di (莫林弟), CEO of the Yongding Group.
About Hongqi Electricity
Hongqi Electricity was founded in 1968 by the Chinese government with the aim of fostering key national industries. Currently it employs about 1,000 people with sales amounting to approximately KRW100 billion a year. As a leading cable maker in China, its main clients are state-run enterprises, and the company has good brand recognition in China thanks to its long history and technical know-how.
Hongqi Electricity produces a variety of cables such as submarine cables, power cables (including 220kV extra-high voltage cables), and special industrial cables, in a plant situated on a 406,600m² (123,000 pyeong) lot in Yichang (宜昌) City, the 2nd largest city in Hubei Province, halfway up the Yangtze River (揚子江). In particular, Hongqi Electricity is the 3rd largest manufacturer of submarine cables in China and located right off the Yangtze River in consideration of the logistics needed for submarine cables.
Yongding Group acquired Hongqi Electricity, a state-run enterprise, in 2003, and managed the company until it sold it as part of the group’s restructuring strategy.
Expected benefits
The Chinese market, which currently accounts for 24% of the global power cable market, is expected to grow 4.6% on average annually until 2012 as the Chinese government will invest about KRW800 trillion over the next three years to stimulate the economy.
China’s power cable market is not easy to penetrate because of China’s preferential treatment to Chinsese companies and high customs duties on foreign products. The strategic significance of LS Cable’s acquisition of Hongqi Electricity is that it has laid the foundation for breaking down an entry barrier to the Chinese market as well as secured a base in Hubei Province, a point of strategic importance for the development of Northwestern China.
Jong-ho Sohn, President of LS Cable said, "the brand awareness and customers of Hongqi Electricity, the production technology and operating capabilities of LS Cable, and the synergies we have with existing businesses will allow us to turn the company into a major general cable maker in China."