STX targets improved soundness

No big M&A foreseeable, markets welcome decision

By Kim Yoo-chul

Korea’s shipping-shipbuilding conglomerate STX Group has finally found a clear way to improve its financial soundness. But this time it is not a plan for mergers and acquisitions (M&A).

Instead of seeking big acquisitions for further external growth, the group has decided to cut its M&A appetite to stabilize its financial structure, a direct decision by its chairman.

Financial markets were welcoming the decision because the change of its business roadmap is going to help the group focus on the group’s core shipbuilding-related businesses.

Shares of STX and the group’s main affiliates rose more than 3 percent on Monday’s trading on South Korea’s main bourse and market analysts predict the shares will rise further coupled with positive signs in a turnaround for global shipbuilding-related sectors.

``The decision makes sense. We are considering buying more STX Group-related shares as STX still has initiatives to better compete with its rivals in the global shipbuilding and shipping markets,’’ said a fund manager of a Europe-based investment bank in Seoul, in a telephone interview.

The manager said the bank’s research-related teams were already in the process of analyzing the effects of STX’s decision before taking action to buy listed STX Group-related shares.

He declined to be named because he wasn’t given the right to officially speak to the media.

The consideration comes after STX said it won’t seek large-scale M&A bids in the foreseeable future and is planning to focus on strengthening its own financial soundness to help overcome deteriorating market conditions.

``STX Group Chairman Kang Duk-soo has shifted his top priority to stabilize the businesses of the group’s key affiliates. We will put on hold any plans to appear on M&A markets,’’ said a senior STX executive.

The group-wide decision comes two months after STX dropped its ambitious plan to buy Hynix Semiconductor, worth more than 3 trillion won.

STX was hit by unconfirmed rumors that group affiliates would sell stock to help pay off debts amid the continued bearish moves in the global shipbuilding and shipping fields.

Last week, STX’s bulk-shipping line, STX Pan Ocean retreated by the daily limit of 15 percent in Seoul, while other units also tumbled, cornering STX executives to unveil a radical plan to soothe market speculation.

``We need to regain investor confidence in the markets and are positive that the latest announcement will help,’’ said a senior STX spokesman.

As a back-up plan to improve financial soundness, STX said it is considering selling some of its assets and added its recent finalization to raise 200 billion won needed to repay debts maturing in January will send a consistent message.

``It’s totally groundless that STX affiliates were in a cash-originated crisis,’’ said the spokesman, adding it will secure an additional 700 billion won by selling foreign assets early next year.

Meanwhile, the group’s energy affiliate STX Energy is set to join the group-wide fund-raising campaign, with a plan to raise 600 billion won in the first quarter of next year.

``STX’s back-up plans are receiving more favorable reviews. But actions speak louder than words. STX needs to do more to gain clear confidence from the markets,’’ said the manager.

The cash-related problems had originally come from STX’s previous plan to buy Hynix. Despite backlash from the markets, STX said it would push its bid as scheduled.

But STX’s strategic funding partner in Abu Dhabi withdrew its strategic partnership, a big blow for STX. Its plans to sell core assets have been stalled in the wake of bearish market moods, resulting in Kang scrapping the Hynix bid.

Citing higher debt-ratios by STX, the result of quite dismal performances in winning new shipbuilding orders compared to its bigger cross-town rivals such as Samsung, Hyundai Heavy and Daewoo, market analysts still want STX to apply more finely-tuned funding strategies, in addition to those announced.

STX should pay back 590 billion won in debts that mature in the first half of next year. It’s rumored that STX will sell its major stake in STX OSV, a European affiliate, though the STX spokesman declined to confirm it.

``What we can confirm is that our stabilization scheme to cope with global economic uncertainty, including pre-emptive measures to seek future stability in our financial structure and management won’t change,’’ he said.

Kang is a legend among many salaried workers in South Korea. He significantly helped STX increase its business scale over 100-fold after the acquisition of the now-defunct Ssangyong Heavy in 2000.