Will POSCO sell Myanmar gas ownership?

By Lee Hyo-sik
Whether POSCO will dispose of Daewoo International’s natural resources businesses is drawing keen attention from investors and business circles.

The world’s fourth-largest steelmaker holds a 60.31 percent stake in Korea’s largest trading firm, which has successfully been producing natural gas in the waters off Myanmar since June 2013.

POSCO Chairman Kwon Oh-joon, who took over the struggling steel giant from his predecessor Chung Joon-yang in March 2014, has been spearheading the group-wide restructuring campaign. Kwon said that all POSCO subsidiaries are subject to restructuring and some of them could be sold to third parties if necessary.

On a flurry of reports that POSCO would sell Daewoo’s stake in the natural gas business, POSCO officials say nothing has been decided.

“We have been studying diverse ways to overhaul our affiliates since Kwon took office,” a POSCO spokesman said. “Disposing of Daewoo International’s natural resources division has been one of many items on the table. But nothing has been decided yet.”

When requested by the Korea Exchange, POSCO said it has been reviewing a wide range of steps to improve its financial soundness, adding that it hasn’t decided whether to dispose of Daewoo International’s natural resources business. The steelmaker said it will make a decision on the matter in June.

However, investors do not rule out the possibility of the company selling the gas ownership as it has been selling non-core units to raise much-needed cash to improve its finances.

Daewoo International flatly denied the possibility of the sale, stressing that unloading its stake in the Myanmar natural gas and other resources-related projects would be a huge loss for POSCO.

“It is true that we had considered selling the Myanmar natural gas business, but after a careful review we decided not to,” a Daewoo International spokesman said. “But we know our parent POSCO has been studying this as one of the measures to enhance its financial health.”

Daewoo generated a 94.1 billion won ($85.5 million) operating profit from its Myanmar natural gas project in the first quarter of this year, accounting for 88 percent of the firm’s 110.8 billion won operating profit. That means that the trade company will likely earn nearly a 400 billion won operating profit from producing natural gas in the Southeast Asian nation for 2015.

The possible sale of Myanmar gas project is the latest in a series of moves by POSCO to restructure its affiliates.

The steelmaker used to extend financial aid to badly performing subsidiaries or merge them with sound entities, but it is now subjecting them to a stringent restructuring scheme, or liquidating them.

Korea Investors Service, a local unit of global credit ratings agency Moody’s, downgraded ratings of struggling POSCO affiliates, including POSCO ICT, POSCO P&S, POSCO Engineering and Construction (E&C).

The move came a day after cash-strapped POSCO Plantec, an industrial engineering firm, applied for a creditor-managed debt structuring program. The company has failed to pay back debts due to a lack of funds.

Source: .Korea Times

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