KG Group to acquire Dongbu Steel

A Dongbu Steel plant in Dangjin, South Chungcheong Province / Courtesy of Dongbu Steel

By Nam Hyun-woo

Chemicals conglomerate KG Group is close to purchasing Dongbu Steel, Korea's No. 5 steelmaker, according to its major creditor Thursday.

The Korea Development Bank (KDB), Dongbu Steel's largest shareholder, said it had selected a consortium comprised of KG Group and Cactus Private Equity as the preferred bidder for the steelmaker.

Nearly 85 percent of Dongbu Steel shares are held by creditors, with KDB having a 39.17 percent stake, NongHyup Bank, 14.9 percent, the Korea Export-Import Bank, 13.58 percent, and several other lenders having over 8 percent.

The deal is valued at around 500 billion won ($440.84 million), and management of the steelmaker is expected to be transferred through a rights issuance. By issuing approximately 27.5 million new shares to the buyer, the stake held by the creditors will be pushed below 50 percent.

Dongbu Steel has been up for sale for the past five years, with creditors attempting a split sale, package deal and several other methods to exit from the steelmaker. It went through a corporate workout program in 2015.

The company has been suffering financial difficulties for years. Last year, the firm logged 65.61 billion won in operating losses, up from 11.77 billion won a year earlier.

The firm is capable of producing 4.8 million tons of steel a year, with annual sales hovering over 2.5 trillion won in 2017 and 2018.

KG Group is a midsize conglomerate whose core business is chemicals. It has been expanding its portfolio in recent years, acquiring companies including payment firm KG Inicis, chicken franchise KFC Korea and the Edaily economic newspaper.

Cactus Private Equity is a fresh private equity fund founded in July last year.