10 Tln Won for Investments & M&As

POSCO sets aside funds to expand steel production and seek M&As targeting Daewoo Shipbuilding and Daewoo International

POSCO is set to spend 10 trillion won for investments and M&As at home and abroad this year, double the steelmaker’s total investment last year, the company said recently.
The world’s fifth-largest blast-furnace steelmaker said the fund includes both those for facilities and M&As that the company will consummate this year, spending some 5 trillion won on the side. Last year, POSCO set aside 7.5 trillion won for investments, but only spent 5 trillion won due to the economic slump.
The steelmaker’s M&A targets include Daewoo Shipbuilding and Daewoo International, according to industry sources, at a cost of some 4-5 trillion won, with any fund shortfall to be shared by financial investors. POSCO President Lee Dong-hi told a local daily that the 10 trillion won set aside include funds for M&As out of which the steelmaker will use 5.6 trillion won from its cash reserves. The large cash holdings resulted from the delay in the schedule to build an integrated steel mill in India and the suspension in the sale of Daewoo Shipbuilding at the end of last year, the sources said.
Operating profits continue to mount year after year and the steelmaker can easily come up with some 10 trillion won in cash through its liquid financial assets including cash-type assets, they said.
The steelmaker expects to sell 30 trillion won worth of steel products this year with 6 trillion won in operating profit, or 20 percent of total sales, as was reported to the board of directors on Dec. 18. Chairman Chung Joon-yang is expected to announce the company’s management plans officially at Korea Exchange on Jan. 14.
The company will invest from 5 to 6 trillion won in new facilities both at home and abroad, about the same amount usually set aside every year, although the economic recovery is occurring at a slow pace. The investment fund includes money to be invested in the early stages of the projected steel mill in India and steel production facilities at the Gwangyang steelworks and the construction of the fifth cokes plant.
This year’s sales target of 30 trillion won is up 10 percent from last year, while targeted operating profit is double that of last year. The steelmaker is estimated to have posted 27.1 trillion won in sales and 3.2 trillion won in operating profit last year.
Securities sources said POSCO is likely to secure raw materials at an inexpensive price during the first half and prices of steel products are expected to rise, boosting its profit. POSCO also is expected to be a major player in the M&A market in the country this year, the sources said.
In the meantime, Bloomberg News reported that POSCO plans to build a steel plant in Karnataka State in southwestern India at a cost of $7 billion, quoting from the statement issued by the Karnataka State government on Jan. 8.
A spokesman for POSCO’s subsidiary in India said POSCO’s Karnataka steel plant will be the second one when completed, after the integrated steel plant being built in Orissa State in eastern India at the cost of $12 billion. The projected steel mill will be capable of producing 12 million tons of crude steel annually. The Ministry of Environment of India on Jan. 3 approved the plan to develop 2,900 acres of forest area for commercial uses in Orissa State, clearing the way for POSCO to build the projected blast-furnace steel plant. POSCO has been unable to make progress with its steel plant project because of local residents’ rejection of POSCO’s planned steel mill.
In the meantime, Chairman Chung, in his New Year’s speech, said he expects this year to be the year for POSCO to “run like a tiger” for its operational goals, as this is the year of tiger on the lunar calendar.
The chairman said he hopes this year will be the initial year for the steelmaker to achieve its goals to develop into an integrated material maker, take on natural resources development, energy and ICT businesses as its strategic lines of business and fully take advantage of opportunities for M&As at home and abroad. He went on to say that the company will try hard to realize tangible results from its projects in India and Indonesia this year, expand investments in natural resources exploration, and in emerging markets as well as in the marine sector for the creation of business synergy in those areas. nw

POSCO Chairman & CEO Chung Joon-yang