Groundless Rumors?
On January 17, a local news outlet reported that Doosan Group is discussing the sale of Doosan Heavy Industries & Construction to focus more on Doosan Robotics and Doosan Bobcat after adjusting its business portfolio with the profitability of Doosan Heavy Industries & Construction deteriorating due to the factors including the South Korean government’s nuclear phase-out policy.
“The report is not true at all,” Doosan Group said, adding, “Doosan Heavy Industries & Construction is one of our key subsidiaries and we have never discussed the sale of the company.”
The report is based on the fact that the company’s profitability is deteriorating these days as mentioned above. In addition, the group’s cash liquidity has not improved since 2014. In January last year, NICE Investors Service and Korea Investors Service adjusted their credit ratings for Doosan Heavy Industries & Construction from A- to BBB+. Since then, Doosan Heavy Industries & Construction has had a hard time financing itself in the bond market.
Doosan Group has conducted restructuring since 2015 in order to improve its financial structure. However, the restructuring process has shown little progress. Some of its subsidiaries, such as Doosan Infracore and Doosan Bobcat, are now more competitive than before, but the financial structures of Doosan Heavy Industries & Construction and Doosan Engineering & Construction are still fragile. The short-term borrowings of Doosan Heavy Industries & Construction almost doubled from 987.2 billion won (US$888 million)to 1.795 trillion won (US$1.615 billion) between the end of 2016 and September last year although its long-term borrowings fell from 949.4 billion won (US$854 million) to 554.4 billion won (US$498.9 million) during the same period.
In fact, Doosan Group sold its subsidiary or business unit or concluded an M&A deal in advance during each of its past crises. For example, it reduced the number of its subsidiaries from 23 to five in 1995. In the 2000s, it took over Korea Heavy Industrial Construction, Korea Industrial Development and Doosan General Machinery to turn itself from a consumer goods manufacturer into a heavy industry company. In addition, it sold the manufacturing machinery business unit of Doosan Infracore for 1.1308 trillion won (US$1.01 billion) as well as Doosan DST and the heat recovery steam generator (HRSG) business of Doosan Engineering & Construction.
After the report was released, the stock price of Doosan Heavy Industries & Construction fell 13.07% and hit a 52-week low of 14,300 won (US$12). After the group’s explanation, the rate of decline decreased to 3% to 4%.