By Choi Kyong-ae
POSCO’s planned asset sale to Saudi Arabia’s sovereign fund may suffer a delay as prosecutors began a probe into its construction unit on charges of running an overseas slush fund in connection with a Vietnam project, people familiar with the matter said Friday.
A POSCO executive reportedly said, “As the Saudi deal has nothing to do with the ongoing investigation, we do not expect the probe to have any impact on the planned sale. But we won’t likely complete the deal as scheduled.”
POSCO, the world’s sixth-biggest steelmaker by output as of May, said it had no official comment on the matter.
The Pohang-based steelmaker was scheduled to sign a deal to sell a 40 percent stake in POSCO Engineering & Construction (POSCO E&C) to the Public Investment Fund of Saudi Arabia, and set up a construction joint venture in the Middle Eastern country as early as late March or early April, a POSCO spokesman said.
POSCO owns an 89.5 percent stake in the construction company. The acquisition price of the 40 percent stake will reach more than $1 billion, according to local reports.
The company has been pushing to complete the deal with the sovereign fund by the end of June, not only to improve its financial status but also to foster a new growth engine, the spokesman said.
For 2014, POSCO posted a 59 percent plunge in net profit to 556.66 billion won ($495 million) from 1.355 trillion won a year earlier. For 2015, it came up with a net profit target of 2 trillion won, according to a regulatory filing.
“In the fourth quarter of 2014, 860 billion won worth of one-off costs such as foreign exchange losses caused by a weak won and tax penalties sharply cut into the annual bottom line,” another spokesman said.
For five sessions from March 13, when the probe began through Friday, POSCO stock fell 4.1 percent to close at 254,500 won. But the benchmark Korea Composite Stock Price Index remained unchanged at 2037.24.
Last week, the Seoul Central District Prosecutors’ Office began the probe by raiding the headquarters of POSCO E&C after the builder found in its audit last month two of its executives and a dozen employees generated a slush fund worth about 10 billion won in Vietnam.
The builder allegedly inflated the payments to its subcontractors and later reimbursed them with rebates from 2009 to 2012. Former POSCO Chairman Chung Joon-yang and former POSCO E&C Vice Chairman Chung Dong-hwa, banned from leaving the country, are expected to be summoned for questioning next week, according to local reports.