Restructuring of Dongbu

Bird’s eye view of Dongbu Power in Dangjin, North Choongcheong Province.
Bird’s eye view of Dongbu Power in Dangjin, North Choongcheong Province.

 

As the self-restructuring plans of the Dongbu Group are being successfully executed, worries over a liquidity crisis are diminishing. If the plans go well, a substantial amount of capital inflow and decreased debts, due to selloffs, will happen next month, and an expectation on financial stabilization will be enhanced accordingly. Dongbu is expected to face a turning point in September.

According to the industry on August 17, 154 billion won (US$151 million) has already been secured by selling Dongbu Express. An additional 270 billion won (US$264 million) will be secured in cash on September 5, when Dongbu Corporation sells off Dongbu Power in Dangjin. Considering that the corporate bonds that Dongbu Corporation has to pay back within this year total 84.4 billion won (US$82.9 million) including 50 billion won (US$49.1 million) expiring in September and 34.4 billion won (US$33.7 million) expiring in November, the liquidity problem will be completely dissolved.

Regarding Dongbu HiTek, which has not been able to find a buyer so far, a hit is expected, as five potential buyers are recently competing over it. A total of five financial investors (FI) showed interest in acquiring Dongbu HiTek from August 13 to 25. Hahn & Company and Ask Veritas Asset Management are Korean investment funds that already submitted Letters of Intent (LOI) signaling their interest to buy the company. Additionally, Bain Capital, an American fund, SMIC, a Chinese semiconductor company, and a Taiwanese company also expressed interest, according to an industry professional. SMIC is especially eager to acquire Dongbu HiTek since the Chinese government is attempting to enhance the competitiveness of the semiconductor businesses by providing tax reductions and expanding the purchase of semiconductor-related products. As five candidates fiercely are competing against one another, the sales price is also expected to rise. Dongbu Group plans to sell 37 percent of equity, which is evaluated as 200 billion won (US$196 million). If Dongbu HiTek is successfully sold off, the debts and interest costs of the entire Group will be greatly reduced. Dongbu HiTek has 800 billion won (US$784 million) of debt, which incurs 60 billion won (US$59 million) of finance costs annually.

Other offerings from the Dongbu Group are welcomed in the market as well, especially Dongbu Specialty Steel. Hyundai Steel and SeAH Group are already interested in acquiring Dongbu Specialty Steel. Korea Development Bank will send out teaser letters to candidates next month and select priority negotiation targets in November. In this case, the selloff will start immediately in January next year when securities protection is waived.

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