STX prioritizes global expansion

By Kim Yoo-chul

Shipbuilding conglomerate STX Group is bullish about further bolstering its international presence but this time, mergers and acquisitions are not at the center of its plans.

STX reaps over 90 percent of its total annual revenue outside the Korean Peninsula through shipbuilding, shipping, energy, raw material development, machinery and plant businesses from Europe and China to the Middle East.

Chairman Kang Duk-soo is still positive of achieving its target of 120 trillion won, or some $100 billion, in revenue by the end of 2020 by expanding to natural resources development, plant-related businesses in emerging markets, as well as strengthening its existing areas.

``STX expects next year to be another challenging one. What we should do is seek stable growth with improving financial soundness to tackle any market uncertainties,’’ Kang said recently.

In a meeting with some 200 STX executives to discuss the group’s fine-tuned business plans for next year, he asked them to stick with three criteria ― ship orders, profit-driven management and financial soundness ― when finalizing business strategies for the coming year.

The requests by the chairman reaffirms his previous stance towards a conservative management approach after the group declared months earlier it would focus on improving its financial standing to help withstand worsening market situations, according to company executives.

``STX Group saw a meteoric rise in terms of external growth over the last decade however should we focus more on seeking stable growth in the next decade,’’ stressed Kang.

STX spokesman S.H. Lee said the group’s affiliates were in advanced talks to guarantee strengthened liquidity as a pre-emptive measure for another downturn in global shipping and shipbuilding.

Since Kang took managerial control of the company, its external expansion has appeared to be unstoppable. It struck a series of domestic acquisition deals to diversify into shipping and shipbuilding.

That worked well. STX has risen as the world’s fourth-biggest shipbuilder in within a decade. Last year, the group had 11 affiliates with total revenue of 21 billion from $220 million in 2001. It has 18 shipyards in eight different countries.

But the group’s controversial bid to acquire a major stake in Hynix Semiconductor, the world’s second-biggest chipmaker, caused it to grapple with liquidity-related concerns amid continued bearish moves in the global shipbuilding-related industries.

Kang finally decided to end the ambitious bid for the South Korean chipmaker and announced plans to secure over 700 billion won throughout the sale of overseas assets by early next year and attract 600 billion won in funds for its STX Energy unit by the January-March period.

But ending its interest in Hynix Semiconductor doesn’t mean STX will be passive in business expansion.

Financial markets welcomed about the decision to drop the Hynix bid and gave more credit to STX’s ongoing efforts to speed up its ``vertical integration’’ between affiliates in existing shipping- and shipbuilding-related sectors.

Back to basics

An increased inventory of vessels is helping STX solidify its position in the shipbuilding industry.

With shipbuilding facilities in Europe, China as well as its home-turf South Korea, STX is producing various vessels from premium cruise ships and battleships to raw materials carriers.

Lee said its plant in Dalian, China, delivered more than 20 ships last year, two years after the facility opened.

``Our ship plant in Dalian isn’t just a spot to manufacture ships because the facility realized a `vertical integration’ in all processes required to produce vessels. The plant allows the coating of basic materials, assembling engines, manufacturing blocks and the construction of ships,’’ said Lee, adding STX has saved on logistics costs and increased efficiency in production.

This year marks the 10th anniversary of the group’s foundation.

The continued bearish moves in global shipbuilding-related areas have raised concerns that the financial health of the group’s critical affiliates will deteriorate, pushing it to seek chances in emerging markets.

So far, STX performed well. It’s been exploring ``untouched territories’’ such as offshore plant construction, energy and natural resources development.

It signed a 3 trillion won deal with the Iraqi government to build 24 diesel plants in the war-torn country. Its heavy equipment affiliate agreed a separate deal with the state-owned oil refiner there, North Refineries Company (NRC), to sell diesel-related equipment.

Such achievements stretch to Saudi Arabia, Jordan and the United Arab Emirates (UAE).

In Saudi Arabia, STX landed a raw materials projects worth $2 billion, , while its construction affiliate has completed a housing complex ahead of schedule in Abu Dhabi.

``STX is keen to expand its footsteps into emerging markets,’’ said Kang, adding several big deals from countries in the Middle East and Africa will make it stronger.

But it’s evident the chairman needs more. He identifies natural resources development as the new axis for future earnings.

In a statement, the group said it is aiming to create 30 trillion won in revenue and 2.4 trillion won in operating profit only from natural resources and energy development businesses.

STX and STX Energy are handling this. The group has made progress, acquiring a coal mine for $30 million from a firm in Indonesia this year.

STX expects the purchase to help it earn over $100 million on an annual basis over the next 15 to 20 years, according to the statement to The Korea Times.

Its energy affiliate STX Energy bought a 100 percent stake in a gas-producing spot for 152 million Canadian dollars from Canada’s biggest gas firm EnCana, while partnering Ankor E&P Holding to acquire the management rights in a oil-producing area in Alabama, the United States.

``In general, STX has done quite well so far. By effectively using some 150 global networks that have been scattered across the globe, it will grow the next businesses by seeking stable growth in our existing areas,’’ said the group chairman.