Dangerous Step

 

As POSCO is seeking to sell Daewoo International’s gas field in Myanmar by equity spinoff, there are growing concerns that it could undermine the corporate value of Daewoo International.

On May 26, the stock price of Daewoo International decreased 4.61 percent to 26,900 won (US$24.32) from a day before. Since the Myanmar gas field is a lucrative business that can create 400 billion won (US$361.57 million) a year for the next 30 years, its stock price has dropped sharply.

Without the golden goose of the resource development sector, it is true that the company will not be able to maintain high profitability with its general trading sector alone. Ryu Jae-hyun, an analyst at KDB Daewoo Securities, said, “As long as there is no official reply from the company, potential uncertainty will remain. There will be no positive effect on the stock prices of Daewoo International.”

Daewoo International posted 4.5255 trillion won (US$4.09 billion) in sales and 110.8 billion won (US$100.15 million) in operating profits in the first quarter. Its gas field in Myanmar, which accounted for most of the total operating profits last year, recorded 94.1 billion won (US$85.06 million) in operating profits in the first quarter. Nearly 85 percent of operating profits came from the Myanmar gas field.

The increase in profits is largely due to the fact that the output of the Myanmar gas field reached its maximum last year, which led to the improvement of profitability. After Daewoo International started full-fledged commercial gas production in the Myanmar field in Nov. 2013, its daily gas production increased to 300 million cubic feet in April 2014. The company also produced 400 million cubic feet of gas in Aug. 2014 and succeeded in producing 500 million cubic feet of gas per day, which is the largest scale, at the end of last year.

Daewoo International secured the right for gas field exploration from Myanmar’s government back in 2000 when the company entered its corporate workout program. As India’s companies, which jointly participated in exploration, decided to withdraw from the business due to the small possibility in 2003, Daewoo International had to pay drilling costs by itself.

In particular, the company found the Shwe gas field, which was located 3,000 meters from the bottom of the ocean, in Myanmar in 2004, in which seven global oil and gas companies from France, Japan and the U.S. failed to find any feasible gas fields in the 1970s. It also succeeded in discovering the Shwe Phyu gas field in 2005 and the Mya gas field in 2006.

Meanwhile, Korea Exchange (KRX) asked Daewoo International for inquiry disclosure on rumors about an equity spinoff and sales of its resource development sector on May 26. The company must have replied by 6 p.m. the same day.

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