POSCO Daewoo executives to buy treasury stocks

Executives' stock buying to buoy share prices criticized

By Nam Hyun-woo

POSCO Daewoo is facing criticism from its shareholders over allegations that it deliberately hid an explosion in a natural gas pipeline in China, an accident analysts said was the main culprit behind its sluggish stock prices.

Some shareholders said the accident was disclosed by securities analysts in China, claiming the company did not disclose the accident in a regulatory filing.

On Thursday, a petition was posted on Cheong Wa Dae’s website, calling for an investigation into POSCO Daewoo’s move.

One person wrote that “short selling by institutional investors grew explosively in June and private investors knew about the accident only after the company announced its second-quarter earnings.”

“The company then explained to individual investors that the issue is not a matter of regulatory filing, but told analysts about the accidents. How can an accident in the gas field, which accounts for a lot in its sales, not be a matter in its regulatory filing,” the petition read.

But POSCO Daewoo officials insisted they didn’t have to file a regulatory report.

The company also said Thursday its executives will buy treasury stocks worth more than 10 percent of their monthly salary, in a bid to salvage the company’s falling stock price.

But the move is also criticized as a patchwork measure to cover its decision to not disclose the accident through regulatory filing, while analysts knew about the accident.

According to POSCO’s trading and energy development unit, all 76 executives at the company agreed to the plan to buy treasury stocks.

Following the agreement, executives’ stock accounts will automatically buy POSCO Daewoo shares worth at least 10 percent of each executive’s salary beginning next month.

The move came after POSCO Daewoo stocks plunged despite solid second-quarter earnings.

On July 23, POSCO Daewoo posted 6.17 trillion won ($5.51 billion) in sales and 136 billion won in operating profit for the second quarter.

Despite operating profit growing 40.37 percent from a year earlier, the price plunged to 17,750 won on Wednesday, as the explosion in the pipeline in China linked to POSCO Daewoo’s Myanmar gas field on June 10 came to public attention.

During the period, POSCO Daewoo shed 24.6 percent.

According to POSCO Daewoo, the pipeline accident took place in China's Guizhou Province, 900 kilometers from Myanmar’s border.

It is owned by China National Petroleum Corporation and has a history of accidents in the region last year, with the Chinese authority reportedly considering a new pipeline bypassing the region.

POSCO Daewoo said it has no responsibility at all over the accident and the Chinese authorities will compensate for inventory loss incurred from it.

What worried the investors, however, was the operating profit coming from the Myanmar gas field accounts for a whopping 70 percent of POSCO Daewoo’s overall operating profit.

“Due to the pipeline explosion, the average daily volume of the Myanmar gas field declined 260 million cubic feet in June and went further down to 150 million cubic feet for this month, which is the break-even point for the gas field,” Hana Financial Investment analyst Yoo Jae-seon said.

“Given at least three months for recovery, poor third quarter earnings will be inevitable for POSCO Daewoo, though it is expected to be normalized before winter.”

A POSCO Daewoo official said that “The gas field is a long-term project that can produce gas for at least 20 years and a temporary decline in volume will not devalue the gas field.”

“However, the executives joined their efforts as they deeply feel responsible for the share price and they were convinced about the company’s future growth and regaining shareholder confidence,” the official said.