UPDATE 1-POSCO CEO says may consider stake sale in Daewoo International

Mon May 19, 2014 5:39am EDT

* Kwon says look at "all possibilities" regarding the key resources arm

* Aims to cut capex by two thirds in 2016

* Targets signifincant rises in EBITA, operating profit in 2016 (Recasts, adds CEO comments, details, context)

SEOUL, May 19 (Reuters) - South Korean steelmaker POSCO said on Monday it may consider selling a stake in its profitable trading and resources arm Daewoo International Corp as part of a restructuring plan aimed at shoring up its finances.

POSCO, weighed down by heavy debt and three consecutive years of declining profit, is joining overseas peers like ArcelorMittal and ThyssenKrupp in trying to weather a downturn in the industry as global demand for steel stagnates.

The world's fifth largest steelmaker also said it would cut its investment budget by about two thirds by 2016 while aiming to significantly boost its EBITA and profit by that year.

"POSCO's strategy has been so far focused on expansion, but those days have gone," Chief Executive Kwon Oh-joon told an analysts meeting.

"All businesses are subject to restructuring. Daewoo International is no exception," he added.

Daewoo International is Korea's largest trading company, with businesses including resource development. Daewoo, which also operates gas fields in Myanmar, posted a 54 percent jump in its operating profit in the first quarter of this year.

MARKET DOWNTURN

Global steel producers are weighed down by an oversupply of steel and reduced customer demand, especially from China, the world's biggest consumer and producer of steel.

Kwon, who took office in March, has distanced himself from his predecessor Chung Joon-yang, who spearheaded major investments and acquisitions in POSCO, including the $3.3 billion purchase of Daewoo International in 2010 despite the industry downturn.

The spending spree has left the steel giant with a debt burden that has more than doubled over the past four years and led to a series of rating cuts by Moody's, S&P and Fitch.

Kwon said the steelmaker would scale back its stakes in some affiliates and exit non-core businesses, while seeking to list some of its affiliates on the domestic bourse.

The company has more than 40 affiliates, and Kwon declined to specify restructuring plans, saying they are under review.

"We are looking at various possibilities regarding Daewoo International. Nothing has been decided yet," he said.

POSCO plans to cut its annual investment to 2.9 trillion won in 2016, from 8.8 trillion won in 2013.

POSCO also said it aims to boost its EBITA to 8.5 trillion Korean won in 2016, from 5.7 trillion won in 2013, while boosting its operating profit to 5 trillion Korean won ($4.88 billion) on a consolidated basis from 3 trillion during the period.

While focusing on core, steel business, it will nurture lithium, nickel, fuel cell and clean coal as new growth engines, Kwon said.

"It is very challenging to achieve its EBITA and profit targets, unless the steel market improves sharply," said Lee Won-jae, an analyst at SK Securities.

Shares of POSCO, backed by billionaire U.S. investor Warren Buffett, ended down 0.5 percent on Monday, having fallen 5.4 percent this year, lagging the flat wider market.

($1 = 1024.0500 Korean Won) (Reporting by Hyunjoo Jin; Additional reporting by Sohee Kim and Jungmin Jang; Editing by Miral Fahmy)