Doosan Group Set to Launch Holding Company
Shareholders Expected to Give Go-Ahead in March
By Kim Yoo-chul
Staff Reporter
Doosan Group is streamlining its lines of business and rearranging its apparatus into one, around a holding firm, a process expected to increase transparency and beef up corporate governance, strengthening the stocks of its affiliates.
"The group's financial status will be put on firmer ground after selling its non-core assets," Chung Seung-hoon, an analyst at Hyundai Securities, told The Korea Times, Wednesday.
Eugene Investment Securities raised its target price for Doosan to 130,000 won from earlier 112,000 won, citing Doosan's transition efforts.
"Doosan's holding firm is forecast to get about 40 billion won in royalty payments. As a result of the ongoing global crisis, sales fell but Doosan has potential on a medium and long-term basis," Eugene analyst Kim Jang-hwan said.
The group says debt-to-equity ratio was lowered to 79.8 percent as of the end of last year, down from over 300 percent in late 2005.
This improved debt ratio more than satisfies current requirements that debt ratio be below 200 percent and the combined value of affiliates exceed total assets.
The holding firm would hold a 41.25 percent share of Doosan Heavy Industries, which holds 20 percent of Doosan Capital, but Doosan may not have to sell its financial unit under the revised law.
"Conditions have been met. This holding company plan is expected to 'pass the muster' at a shareholders' meeting slated for March," spokesman Shin Dong-gyu said.
Doosan has previously been engaged in businesses ranging from its core fields of heavy industries to food and beverages. It has since sold its liquor unit to Lotte Group.
Corporate structural changes, under which Doosan Corporation would be turned into a holding firm before 2010, were announced in 2006.
A holding company refers to a corporation that influences the operation of other firms through members of their boards.
The source of its influence is its ownership of stocks in other firms.
But costs of transformation are so great that only a few conglomerates have adopted the system, switching to holding firms.
Samsung has no such fixed plan, while LG and GS are run around their holding firms. SK is also in the final stages of preparations.
Founded at the turn of the 20th century, Doosan is one of Korea's oldest family-owned conglomerates.
The group previously presented several plans to turn into a holding company after facing trouble in corporate management in 2005.
The plan has suffered hiccups in the lead-up.
It purchased U.S.-based Bobcat, the world's top compact construction equipment firm, for $4.9 billion last year.
Its cash balances rapidly deteriorated after the acquisition, with borrowing costs up and credulity down.
Doosan then dropped its bid for Daewoo Shipbuilding & Marine Engineering.
It also sold its spirits-making unit for 503 billion, or some $370 million, to Lotte Chilsung.
The company also sold its packaging unit, Doosan Techpak, to a private equity fund, for 400 billion won.
Its heavy equipment unit Infracore sold its defense business operations into a separate company to bring in additional funds.
The new company, Doosan Defense System & Technology, wholly-owned by Doosan Infracore, will have capital of 397 billion won and debt of 146.3 billion won, with a debt-to-equity ratio of 58 percent.
In 2007, the group separated its magazine and printing businesses while it spun off bio-related business. In November 2006, Doosan dropped its "Kimchi" business.
"With better cash flow and continued royalty income coupled with out existing core heavy-related businesses, Doosan is expected to maintain stabilized financial soundness," Shin, of Doosan, said.
Doosan has a total of 15 affiliates under its wing, including Doosan Heavy Industries & Construction ― the nation's leading power equipment maker, and Doosan Infracore ― Korea's leading construction equipment maker.
Doosan aims to become the world's third-largest construction equipment maker by 2012. The first and second are U.S.-based Caterpillar and Japan's Komatsu, respectively, with target annual sales of $12 billion.
It is currently ranked 7th. .
Desalination Growth Engine
Despite the devastating effects of the global recession, Doosan Group has set a 25.3 trillion won in sales target this year ― an increase of 27 percent from last year ― and planning to reap 1.8 trillion won in operating profits, as the company has secured chances to concentrate its core businesses.
"Some 1.5 trillion won will be allocated solely for research and development (R&D) projects, about the same amount as in 2008," Infracore spokesman Jeong Kyong-O said.
Infracore posted a net loss of 13.9 billion won for 2008, compared with profit of 180 billion won year-on-year due to losses from equity ties with affiliates.
But sales rose 6.6 percent to 3.96 trillion won and operating income added 8.1 percent to 347 billion won.
The unit is expected to post sales of 3.51 trillion won this year and an operating profit of 398 billion won, analysts and company officials said.
"In the long-term, we are still maintaining a 'buy' position for Doosan Infracore, as the demand for advanced high-efficiency loaders in China is set to rise thanks to a possible stimulus plan by Beijing," Ha Seok-won, an analyst at Woori Investment & Securities said.
Woori presented 22,000 won per share at Infracore.
China accounts for some 25 percent of Infracore's total sales.
Meanwhile, Infracore has now established its international loader manufacturing plant, the first phase of which required $50 million in investment.
The facility has an annual manufacturing capability of 10,000 loaders, company officials said.
But some analysts say Infracore is feared to suffer a decline in sales, as demand may weaken in China ― its biggest overseas market ― as the time hasn't been decided yet for the implementation of financial packages by the Chinese government.
The heavy industries unit has also been gaining additional momentum from the power- and desalination-related business sectors.
The desalination market, in which Doosan has developed expertise, is growing, particularly in the Middle East.
Water consultant Global Water Intelligence (GWI) predicts that global desalination capacity will more than double, from 52 million cubic meters a day in 2008 to about 107 million cubic meters by 2016.
"Spending on the construction of desalination plants during that period will reach $64 billion," the research firm wrote in a memo to clients.
Besides the fresh water projects, Doosan Heavy had won a 100 billion won-valued deal to upgrade a power plant in South Korea.
The deal with the Korea South East Power (KSEP) calls on Doosan Heavy to complete the work for the power station in Yeosu, some 450 kilometers southwest of Seoul, by December 2011.