The passage of the Yellow Envelope Act in South Korea is casting another shadow over Hyundai Steel’s ongoing sale of its wholly owned subsidiary Hyundai IFC, according to one buyside source and sector investors.

The legislation, which was passed over the weekend and is expected to intensify the labour-management conflict, would directly affect the steel forging and castings business, which employs more than 500 workers. The prospective financial investors would struggle to integrate the unit and face increased operational risks from the aggressive labour union, raising doubts about deal completion, they said.

With local strategic Dongkuk Steel’s withdrawal, only private equity firms are in the race after having submitted binding bids, the source said. No other strategic players are attracted to the deal, which is worth about KRW 250bn (USD 180m), he added.

Hyundai Steel, part of Hyundai Motor Group, reiterated its statement on 22 August that it is reviewing strategic options for its subsidiary but has yet to decide. The listed steel maker stated it has no plans for a sale to Dongkuk Steel following the latter’s announcement of withdrawal on the same day.

Mirae Asset PE, Pine Tree Partners, and Woori Private Equity have submitted binding bids for Hyundai IFC, Yonhap News reported yesterday (25 August). KPMG Samjong is managing the sale.

Hyundai IFC posted KRW 39.8bn in operating profit and KRW 527bn in revenue in 2024, up 101% and down 1.8% YoY, according to its annual report. The disposal was reportedly part of the parent firm’s efforts to raise capital as it is planning a USD 5.8bn investment in an electric arc furnace steel plant in Louisiana, US, which is slated to launch in 2029.

A Hyundai Steel spokesperson told this publication that it does not need to sell its subsidiaries to finance the US investment, as it will be funded through internal resources and loans. The company does not expect the Yellow Envelope Act to affect any sales of its subsidiaries, but will monitor developments.

Why the new rule matters

On 24 August, South Korea’s new ruling Democratic Party pushed through the Yellow Envelope Act, an amendment to the Trade Union and Labor Relations Adjustment Act, despite strong opposition from the main opposition party, the Korea Chamber of Commerce and Industry (KCCI), and several business federations. The bill had previously been vetoed by the former administration concerning its potential negative impact on the country’s business environment.

The rule expands labor protections for subcontracted or affiliated workers and restricts employers’ ability to claim damages from any strike.

Domestic and foreign companies repeatedly expressed concerns that the broader and vague definition of “employer” could heighten strike risks and disrupt core operations in South Korea, whilst labour groups welcome its stronger protections for subcontracted workers.

Hyundai IFC’s business connected to the shipbuilding industry is profitable, growing, and is expected to benefit from the sector’s strong cycle over the next few years. However, its labour-intensive nature now makes it a much more difficult asset for any potential owner to manage, the sector investors said.

The new labour rule marks a significant change in the field and could complicate deals involving other steel or industrial manufacturing assets, deterring buy-side interest, they added.