Doosan Infracore, South Korea’s largest construction equipment maker, plans to list Doosan Bobcat, its small construction equipment-making affiliate, on Korea’s stock exchange this year to improve the group’s financial health. Once the ongoing sale of Doosan Infracore Machine Tools and the listing of Doosan Bobcat are successfully completed, it will ease concerns over the financial status of Doosan Infracore.
Doosan Infracore announced publicly on Feb. 23 that it held a board of directors meeting a day earlier and decided to list the shares of Doosan Bobcat on the local bourse. The company will select an underwriter for an initial public offering (IPO) soon so that it can list its shares by the end of this year. After Bobcat’s report on financial accounts in the first quarter this year is finished in the middle of May, it plans to undergo screening in preparation for going public, submit securities reports and file for an IPO, aiming to list the shares on the domestic stock market as early as Aug.
The move is part of the group's all-out efforts to to improve the parent company’s financial status, which sparked concerns that it could face a liquidity shortage. Previously, Korea Ratings cut the credit ratings of non-guaranteed bond by one notch on Feb. 19 for Doosan Group’s four affiliates, including Doosan, Doosan Heavy Industries & Construction, Doosan Infracore and Doosan Engineering & Construction. This was because these affiliates had poor financial performance last year and they are highly likely to see additional losses in the future. Given that the housing construction market in North America is in good shape, Doosan has decided to list the shares of Bobcat, which shows the most stable business showings in the group, in order to remove concerns in the market early and improve the financial structure.
Analysts said Doosan Bobcat could have an estimated value of over 3 trillion won (US$2.43 billion) after the IPO. It has a market capitalization of about 2.8 trillion won (US$2.27 billion) considering the fact that the amount of 10,000 convertible preferred shares, which were invested by domestic institutions, was priced at 286 million won (US$231,643) per share at the moment when the company raised about 800 billion won (US$649.09 million) in a private issue of shares in July last year as a pre-IPO transaction. Given that Doosan Bobcat recorded the best sales results last year and it will be the only small construction equipment producer in the domestic stock market, its market value is expected to far exceed 3 trillion won (US$2.43 billion), according to industry watchers. In other words, Doosan Infracore, which owns a 75.5 percent stake in Bobcat, will be able to secure 600 billion won (US$486.82 million) of funds when selling its 20 percent stake through the IPO.
When the company successfully close the sale of Doosan Infracore Machine Tools, which is currently negotiating with MBK Partners, and the listing of Doosan Bobcat, Doosan Infracore will be able to improve the financial status. The company has to service corporate bonds worth 815 billion won (US$661.26 million), which will expire this year, including 165 billion won (US$133.87 million) in the first half and 650 billion won (US$527.38 million) in the second half of the year. In addition, its hybrid bonsd worth US$500 million (616.25 billion won) will expire in Oct. next year. The company plans to pay back maturing corporate bonds this year with cash holdings, which amounts to 999 billion won (US$810.55 million as of the end of last year, cash flow through its business activities, and refunding. It will also repay consol bonds with funds raised through Bobcat IPO. An official from Doosan Infracore said, “When the sale of Doosan Infracore Machine Tools and the listing of Doosan Bobcat shape up nicely, its debt-to-equity ratio will fall to about 100 percent from 266.9 percent at the end of last year.”
In 2015, Bobcat posted 4.41 trillion won (US$3.58 billion) in sales and 385.6 billion won (US$312.86 million) in operating profits, accounting for 56 percent and 1,470 percent of the total sales and operating profits of Doosan Infracore. Earlier, Doosan acquired Bobcat in 2007 for US$4.9 billion (6.04 trillion won). In the take-over process, the company paid most of the money with large loans worth US$3.9 billion (4.81 trillion won). However, its financial burden was severe as Bobcat saw the decrease in sales due to the global financial crisis in 2008. With North American construction industry witnessing growth from 2010, Doosan Bobcat has succeeded in performance turnaround and become an important affiliate of Doosan Infracore that leads the total performance.