Doosan to raise $470 mil. for ailing builder

Market shows no particular reaction

By Kim Yoo-chul

Doosan Group has approved a fundraising plan in an apparent strategy to save its construction business, company officials said, Tuesday.

A total of 500 billion won or $470 million needs to be raised to save Doosan Engineering and Construction (E&C), they said, with about 300 billion won coming from a proposed shares sale.

The package is aimed at dealing with liquidity problems at the construction unit, which is grappling with project financing investment problems amid the continued sluggish local construction market, said spokesman Lee Jay-hyung.

Doosan will use exchangeable bonds (EB), convertible bonds (CB) and bonds with warrants (BW) as the other cash raising tools. The officials said it will use only equity capital market measures, not a public offering.

Doosan Heavy Industries & Construction plans to buy around 220 billion won worth of shares, giving it a 72.8 percent stake in Doosan E&C.

``That would be a win-win strategy. Doosan Heavy will have a 20 percent larger stake than it needs to secure management rights,’’ said a fund manager, asking not to be identified.

The officials said Doosan E&C will see its cash-on-hand rise to 1.1 trillion won thanks to the move by its parent company and they expect that figure to increase to 1.8 trillion won by the end of the year via a corporate bond issuance.

``Doosan E&C will have no serious liquidity problems,’’ said Lee, adding that its debt ratio will be lowered to 210 percent from the current 290 percent.

A few years ago, when the company was suffering from liquidity-related woes after the acquisition of Bobcat, it secured 780 billion won by selling four of its non-core units.

``It is interesting to see its capability to cope with cash-related problems. So far so good,’’ said another fund manger based in Seoul.

But attention is being focused on whether the plan will go as smoothly as expected. And analysts say it could be a litmus test to check investors’ confidence in Doosan E&C shares.

A recent decrease in the share price was mostly because of disappointment among investors who had not foreseen liquidity woes.

``We think Doosan E&C will improve its financial soundness. But more time will be needed for it to expect a revaluation of its stocks. The outlook for the local real estate market is still uncertain,’’ said a fund manager, who manages group-related shares as his key portfolio.

Sluggish moves in the sector forced the government to come up with needed measures earlier this week aimed at helping financially-stricken builders.