Ailing Dongbu Cries Out for Cash
By Kim Tae-gyu
Staff Reporter
Dongbu HiTek, the embittered subsidiary of Dongbu Group, is asking for cash from the state-run Korea Development Bank (KDB) after failing to attract investment from private players.
The Seoul-based semiconductor maker said Thursday that it had asked the KDB to buy stakes of its profitable unit, Dongbu Metal, for hundreds of billions of won.
Dongbu HiTek, which chalked up an operating loss of 83.6 billion won last year, hopes to shore up its balance sheet through the sales of the Dongbu Metal shares.
``Earlier this week, our executives visited the KDB to request the purchase of Dongbu Metal shares,'' said a Dongbu HiTek spokesman who declined to be named.
``We have yet to fix factors such as sales volume and price, and whether the stake will be higher than 50 percent or not,'' he said. Currently, Dongbu HiTek has a 100-percent stake in Dongbu Metal.
As a world top-tier manufacturer of alloys, Dongbu Metal racked up an operating profit of 139.6 billion won on sales of 457.2 billion won in 2008.
Dongbu HiTek attempted to sell off the lucrative affiliate last year to multiple investors from both at home and abroad, including French-based Eramet.
However, talks with Eramet fell apart since the two companies disagreed on the value of Dongbu Metal in the midst of the lingering global financial crisis.
As a result, Dongbu HiTek failed to carry through an agreement with 14 creditors that it would reduce its debt ratio to less than 300 percent through raising capital of 650 billion won in 2008 and 250 billion won this year.
To boost the semiconductor business, Dongbu borrowed 1.2 trillion won as well as $150 million from the 14 creditors in the form of syndicated loans in 2004.
As Dongbu HiTek could not make money, the firm's debt ratio has jumped, raising a warning flag to its creditors.
``Dongbu seems to be in a hurry to raise capital. As one of its main creditors, the KDB is the last resort for Dongbu to depend on,'' said a Seoul analyst who asked not to be named.
Difficult Path Ahead
Market analysts point out that Dongbu HiTek's original target of raising 500 billion won by selling minority of its shares in Dongbu Metal is simply implausible.
``Dongbu Metal earned big money last year but the outfit may post an operating loss this year as prices of its products continue to slide,'' Samsung Securities analyst Kim Gyung-jung said.
``The market consensus is that a 50 percent stake of Dongbu Metal is worth much less than 500 billion won. In my view, it would be less than half of the amount,'' he said.
Kyobo Securities researcher Eom Jin-seok concurs.
``The alloy market showed extraordinary growth last year but it appears to be calming down this year, eroding Dongbu Metal's bottom line,'' Eom said.
``I don't think Dongbu HiTek will be able to make 500 billion won by selling 50 percent of Dongbu Metal shares. It's a pre-crisis price,'' he said.
James Hong of Daewoo Securities said that Dongbu's focus on the semiconductor business may weigh on the group over the long haul.
``Dongbu's investment in the semiconductor business is feared to end up causing a big loss as the global semiconductor industry is suffering from over-investment,'' he said.
``Dongbu needs to decide what field the group will concentrate on between the semiconductor and steel industries,'' he said.
Dongbu Group Chairman Kim Jun-ki is famous for his affection for the semiconductor business. Dongbu is a mid-tier chaebol, or family-controlled conglomerate.