Indebted steelmaking giant POSCO drafts restructuring plan to bolster finances
SEOUL, April 29
SEOUL, April 29 (Reuters) - South Korean steelmaking giant POSCO, hit by rising debts and three years of profit declines, said on Tuesday that it is drafting a restructuring plan to bolster the group's financial standing.
Chief Executive Kwon Oh-joon, who took the helm at the world's fifth-biggest steelmaker last month, said at the time that he will restructure the company's non-steel businesses, after a wave of investments and acquisitions left POSCO with almost $40 billion of debts.
A prolonged industry downturn worsened by China's decelerating economy has also deepened steel oversupply. POSCO, backed by billionaire U.S. investor Warren Buffett, cut its sales forecast for this year after posting an 11 percent slide in its first-quarter operating profit last week.
According to media reports earlier, POSCO was considering selling a stake in its trading and resources arm Daewoo International Corp, which it had bought in 2010, for 3.37 trillion won ($3.26 billion).
A POSCO spokesman declined to comment on the potential stake sale in Daewoo International.
"POSCO's restructuring move shows that the steel market will remain tough for the time being," said Lee Won-jae, a steel analyst at SK Securities. "Daewoo International is a giant affiliate, but has done little to contribute to POSCO's profits."
Daewoo International, which operates gas fields in Myanmar, saw its operating profit plunge 16 percent last year, compared with 2010.
Shares in POSCO rose 3.4 percent in Seoul trading on Tuesday after the company said it was considering restructuring its businesses. Daewoo International shares slumped over 7 percent.
POSCO's first-quarter profit missed analyst estimates, hit by feeble Chinese demand and chronic oversupply.
China, the world's biggest steel buyer, saw its economy grow at the slowest pace in 18 months in the first quarter. Its government has also ruled out any big stimulus plans, weighing on the demand outlook for steel from manufacturers.
On Monday, Moody's Investors Service said POSCO's first-quarter results are "credit negative", although they will not immediately impact the steelmaker's Baa2 rating and stable outlook.
"The worse-than-expected operating environment for the steel industry is likely to persist over the next six to 12 months," Chris Park, a Moody's vice president and senior credit officer, said in a statement.
POSCO's CEO Kwon has distanced himself from his predecessor, who spearheaded major investments and acquisitions, including the purchase of Daewoo International despite the industry downturn.
That investment spree has left the steel giant with heavy debts and led to a series of rating cuts by Moody's, S&P and Fitch last year.
POSCO, which has nearly 50 affiliates including Daewoo, saw its debt grow to 40.6 trillion won ($39.22 billion) in the first quarter, from 38.6 trillion won in the preceding quarter, according to a regulatory filing last week.
"We are considering various measures to sharply improve our financial structure and focus on our core businesses," the POSCO spokesman said.
He said the steelmaker will finalise the restructuring plan and submit it to the board in a meeting on May 16. ($1 = 1035.1500 Korean Won) (Reporting by Hyunjoo Jin; Editing by Ryan Woo)