Restructuring Doosan
Doosan Engineering & Construction (Doosan E&C) announced its plan on November 26 to secure 400 billion won (US$377 million) through institutional investors. The announcement is receiving a lot of attention from the industry, since its interest is focused on whether or not the plan will be successful. The success of the plan will settle down any controversy over Doosan E&C’s ability to repay its corporate bonds by next year. Failure, on the other hand, will intensify doubts about the company’s capacity to mobilize capital.
Last February, Doosan Group announced the way to improve its financial structure through 1 trillion won (US$941 million) worth of capital injection, including 450 billion won (US$424 million) from a paid-in capital increase and 570 billion won (US$537 million) from investment in kind. However, Doosan E&C needs to raise the 1 trillion won to repay short-term debt within one year.
Doosan E&C’s move to increase the paid-in capital worth 400 billion won through the issuance of redeemable convertible preference shares (RCPSs) can be interpreted as that it intends to secure money through the capital market under the circumstance that the company encountered difficulties in issuing corporate bonds with its credit rating falling to BBB+.
The RCPSs are expected to be issued primarily targeting institutional investors. An industry source said, “If the paid-in capital increase assigned to third parties is not successful, Doosan E&C has to secure money in another way to repay its corporate bonds by 2014.” The source added, “If the company cannot arrange money for repayment with its operating profits, the possibility cannot be ruled out that other affiliates of Doosan Group, like Doosan Heavy Industries & Construction, should provide financial support.”