Asset Sales
The government decided to lower the level of debt ratio of public foreign resource development enterprises to that of global resource development leaders such as Exxon Mobil or British Petroleum (BP). These global benchmarking companies have a 100% - 150% debt ratio, so considering the fact that Korea Gas Corporation has a ratio of 400%, it will be impossible for Korean enterprises to avoid large-scale asset sales.
According to the authorities on August 29, the Ministry of Trade and Industry recently submitted a report on “Future Directions for Foreign Resource Development Reinforcement Policies” to the National Assembly.
The government has announced that it will take care of the distressed assets of public foreign resource development enterprises, but this is the first time an actual and specific debt ratio management method has been reported.
The Ministry will improve the debt ratio of resource development enterprises such as the Korea Oil Corporation, Korea Gas Corporation, and Korea Mineral Resources Corporation to be similar to leading global companies as well by selling distressed assets, activating stock flow, and attracting financial investors,. Exxon’s ratio is 94%, BP’s is 151%, Anadarko’s is 140%, and Statoil’s is 145% as of last year.
The Ministry believes these public enterprises will be able to maintain stable foreign resource development only when they can manage their debt ratios at values comparable to their global peers (100~150%). Therefore, the current government will pursue a high level of restructuring and asset sales for these public resource development enterprises.
Last year, Korea Gas Corporation had a debt ratio of 385.4%, Korea Oil Corporation of 167.5%, and Korea Mineral Resources Corporation of 177.1%. These public enterprises saw their debt ratios double in the past 5 years during former President Lee Myung-bak’s expansion of foreign resource development business. The government gave self-development goals to these enterprises, which then went through large-scale mergers and acquisitions (M&A) to accomplish such goals, creating large loans.
In order for these public enterprises to lower their debt ratios to the level suggested by the government, they have to shut down most of the projects they have been pursuing for the past 5 years. In fact, it will be rather difficult to start any new projects, so the foreign resource development business on a national level will be reduced across the board.
The Ministry noted that it is not trying to lower the debt ratios in a short period of time by selling assets. A Ministry associate said, “Global companies like Exxon and BP have tried for tens of years to stabilize their debt ratios,” and added, “We will respond accordingly to business values and market trends.”
Instead of pushing for harsh asset sales of public enterprises, the Ministry will increase the success payment loan budget for private companies participating in foreign resource development. In other words, foreign resource development will be continued by private companies. The success payment loan is a policy that allows the government to share some of the risk when developing a high-risk industry area, which had a 130 billion won (US$116 million) budget this year but will have an increased 240 billion won (US$215 million) budget next year.