Crossed Destiny
The South Korean government has come up with a big picture with regard to the restructuring of the Korea National Oil Corporation (KNOC) and the Korea Resources Corporation (KORES). According to its plan, the KNOC is to be allowed to continue to do its job after a disposal of non-core assets whereas the KORES is scheduled to sell most of its assets and withdraw from its resources development business. Still, lots of things have yet to be dealt with, including the determination of when and how to dispose of the assets and the establishment of evaluation criteria concerning the values of the assets they have abroad.
When it comes to the evaluation criteria, the basic principle of the government is to sell any asset if it is not profitable even though the asset, that is, oil field, mine, or the like, is directly connected to either one of the two. As of the end of April this year, the KNOC were participating in a total of 29 oil field development projects and 15 out of the 29 are projects in which the corporation has actual management rights. In addition, the South Korean companies including the KNOC have 100% shares in nine out of the 15 oil fields, which implies these oil fields are unlikely to be sold even if not profitable. On the contrary, the KORES is participating in 32 mine development projects, as an equity investor in 30 and an operator in only two.
As far as the timing and method are concerned, the government is going to choose from various options, including package deals at a point in time when the prices of natural resources rebound, an increase in selling prices based on additional investment.
Market conditions are tough, though. These days, a lot of assets are on the market with even major energy companies going under due to low oil prices. The buyer’s market is likely to continue for the time being. “Nowadays, Japanese enterprises are pretty aggressive in purchasing assets and they are likely to demand significant price cuts,” said professor Kang Seung-jin at Korea Polytechnic University.