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Dongbu Steel’s Deal Puts POSCO at a Loss
Local Steel Industry
Dongbu Steel’s Deal Puts POSCO at a Loss
  • By matthew
  • February 17, 2014, 09:07
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POSCO's steel plant in Pohang, South Korea.
POSCO's steel plant in Pohang, South Korea.

 

Sale of the Incheon plant of Dongbu Steel, which has been producing steel pipes and steel sheets, is putting POSCO at a loss.

“Acquisition does not make sense at this point. It is mind-boggling why the POSCO name keeps coming up.” POSCO is voicing discomfort with the prospect of its becoming involved in the acquisition of Dongbu Steel, which Dongbu Group decided to sell as part of its efforts to improve financial structure, but no local steel manufacturers showed interest in. 

According to related sources on January 14, the terms and conditions of selling Dongbu Steel will be decided this month. Facing pressure to correct its balance sheet, Dongbu has put together a package deal to sell the Incheon factory with Dongbu Special Steel and Dongbu Power Corporation in Dangjin. But recently, Dongbu HiTek has announced that they will be sold individually, leaving doors open for both package and individual transactions. 

Dongbu Steel’s Incheon factory has mainly produced cold-rolled steel sheets, galvanized steel sheets, and color steel. It has manufactured steel pipes, as well. Dongbu Group acquired the Incheon factory in the 1980s. In 2013 it earned a net profit of 80 billion won (US$75.4 million). It has been one of Dongbu’s core assets. Its land, building, and facilities account for about 700 billion won (US$660 million). Many estimate that its sale price will be at 1 trillion won (US$943 million). The talks of its sales are going on, but at the moment, local companies are not willing to show any interest in taking part in the acquisition. 

As for POSCO, no big synergy is expected from its acquisition of Dongbu Steel’s Incheon factory. Amid recession of the worldwide steel industry, POSCO is going through restructuring its affiliates, which makes POSCO’s new acquisition burdensome. Its new management is also focusing on ensuring internal stability and would not go out for M&A deals. 

Hyundai Steel and Dongkuk Steel are saying they have no intension to participate in the acquisition. Hyundai Steel’s Vice President Kang Hak-seo said, “We are not considering the acquisition.” Chang Sae-wook of Union Steel also said, “We are not interested at the moment.”

Unlike Korean companies, however, China’s Baoshan Iron & Steel Co. Ltd. has set their eyes on Dongbu Steel’s Incheon factory. The Chinese steel company has been processing domestically-manufactured steel panels here for Korea GM, and has worked closely with Dongbu Steel. With the Chinese market suffering from a demand surplus, it has been watching the Korean market closely, aggressively expressing its will to acquire the Dongbu plant, which Dongbu also has no reason to be against because it is a foreign company. 

The industry is just walking on eggshells because of POSCO, not willingly coming forward to the concern of technology leakage. Arguing that Korea should not give a home ground to China, the local steel industry is pushing POSCO, the big brother of the Korean steel industry, into the acquisition.