Daewoo International, the trading and overseas resource affiliate of POSCO, appears to be suffering from a hangover from its internal strife and deteriorating performance.
While relying heavily on its Myanmar gas field for 70 percent of its profits, Daewoo International has failed to find another profit engine. Recently, the share price of Daewoo International plunged to 2.5 trillion won (US$2.2 billion), down from 4.2 trillion won (US$3.6 billion) in April.
According to local media News 1, the debt-to-profit ratio of the company has increased to 267 percent, three times that of POSCO. With dwindling gas prices, the revenues from gas sales have been shrinking as well. The usual quarterly earnings from the Myanmar gas field was about 100 billion won (US$861 million). However, due to the shrinking gas prices in Q2 this year, the company only earned around 70 billion won (US$60 million). As a result, credit ratings for Daewoo International were recently downgraded. What is the most worrisome regarding the poor performance of the company is its worsening relationship with its parent company, POSCO. It is very unlikely that the company would see any support from its group if Daewoo International would be found to be in default.
POSCO and Daewoo International have also been battling over the possibility of the sales of Daewoo’s gas field in Myanmar, as POSCO plans to restructure its subsidiaries to focus on its steel business.
The relationship started to deteriorate following rumors that Jeon Byeong-eal, the former CEO of Daewoo International, quit in June in protest of POSCO’s asset restructuring plan.
POSCO launched the restructuring plan to improve financial health at the group level. The group chairman made clear at the time that every affiliate could be subjected to restructuring.