Doosan Infracore Co., the heavy equipment unit of Doosan Group, is facing a remnant claim suit worth 705 billion won (US$667.93 million) from a group of financial investors of Doosan Infracore China Co. (DICC).
The lawsuit was filed by IMM PE, Hana Financial Investment PE and Mirae Asset Global Investments PE on March 29. It follows a ruling in February of the Seoul High Court that Doosan Infracore pay the financial investors 709 billion won (US$671.72 million), including 380 billion won (US$360.02 million) in principal and internal rate of return (IRR), over the aborted sale of DICC shares. The financial investors got 10 billion won (US$9.47 million) out of the 709 billion won (US$671.72 million) back after the February trial. Now, they are demanding that Doosan Infracore pay them the remainder.
The financial investors took loans to acquire a 20 percent stake in DICC for 380 billion won (US$360.02 million) in 2011. They planned to repay the loans with the proceeds from the sale of their stakes, either through an initial public offering (IPO) or to a third party. They made the investment on condition of drag-along rights at that time. However, the IPO and the stake sale plans were canceled due to Doosan’s uncooperative attitude. Accordingly, the financial investors claimed damages in principal and a 15 percent interest over their investment.
The amount of compensation is a burden on cash-strapped Doosan Infracore and Doosan Group. In fact, the amount of consolidated loans of Doosan Infracore stood at 3.62 trillion won (US$3.43 billion) as of the end of last year. Out of the total, some 280 billion won (US$2265.28 million) worth of corporate bonds will mature this year. Doosan Infracore also needs to repay 322.2 billion won (US$305.26 million) worth of commercial papers within a year after April 27. Last year, the credit rating of Doosan Infracore’s corporate bonds remained at BBB (stable), forcing the company to raise funds through the issuance of short-term commercial papers instead of corporate bonds. Doosan Infracore had 943.5 billion won (US$893.89 million) worth of cash and cashable assets as of the end of last year.
In addition, Doosan Group has a fragile financial structure. The amount of Doosan Group’s debts reached 11 trillion won (US$10.42 billion) as of the third quarter of last year. Market experts say that the group decreased its debts by 3 trillion won (US$2.84 billion) from 14 trillion won (US$13.26 billion) in 2015 but it still has a long way to go in order to restore financial soundness.
An official from the IB industry said, “With the brisk Chinese excavator market, Doosan Infracore is expected to be able to pay off its debts this year. However, the outcome of the litigation is unpredictable. If the compensation risk is realized, it can further undermine Doosan Group’s financial structure.”