Doosan Group forcing radical restructuring steps

Citizens walk past Doosan Group's corporate logo set up at the group's headquarters in downtown Seoul, April 8. Yonhap

By Nam Hyun-woo

Doosan Group Chairman Park Jeong-won

Doosan Group's effort to secure liquidity appears to be picking up speed, as it is poised to sell off profit-making subsidiaries as part of a group-wide restructuring to rescue its cash-strapped flagship unit, Doosan Heavy Industries & Construction.

However, doubts are raised on the move, as separating or unloading those cash-cow units may hurt the sustainability of either Doosan Heavy or the entire group.

According to industry sources, Doosan Group is fine-tuning its self-salvage plan aimed at securing at least 1 trillion won ($826 million) of new capital, and plans to submit it to its creditors ― the state-run Korea Development Bank (KDB) and the Export-Import Bank of Korea (Eximbank) ― as early as next week.

In late March, the KDB and Eximbank decided to extend a 1 trillion won credit line ― 500 billion won from each bank ― to Doosan Heavy, which is struggling to repay its debts worth 4.9 trillion won.

In return for the bailout, the creditors demanded Doosan Group submit a "strong" restructuring plan, which will improve the conglomerate's overall business structure and sustainability.

Of Doosan Heavy's outstanding debts, 4.2 trillion won is due this year, 2 trillion won of which is non-bank liabilities, such as corporate bonds. Citing this, the sources said Doosan Group has to secure "at least 1 trillion won of capital through its restructuring plan" in order to handle the non-bank liabilities with the 1 trillion won credit line from state-run lenders and additional 1 trillion won from restructuring.

At the center of the restructuring plan is the sale of its cash-cow unit, Doosan Solus.

Multiple domestic news outlet reported Friday that Doosan Group is in negotiation with SkyLake Investment on handing over more than a 50 percent stake in Doosan Solus to the private equity fund (PEF) for a minimum 600 billion won ($495.4 million).

Doosan Solus is a spinoff from the group's holding firm, Doosan Corp., and specializes in materials for OLED displays and copper foils for electric vehicle batteries. Doosan Corp. is the largest stakeholder of Doosan Solus, having a 13.94 percent stake. Including the stake held by Doosan Group Chairman Park Jeong-won and his family members, 50.48 percent of common shares in Doosan Solus are at Doosan Group's disposal.

Along with Doosan Solus, Doosan Fuel Cell is also mentioned as a potential target for sale. The Doosan Corp. and Doosan Group owner family hold a 65.08 percent stake in the hydrogen fuel cell unit.

Following the anticipation over the sale of Doosan Solus and Doosan Fuel Cell, their share prices have risen sharply throughout this month. Doosan Solus was traded at 19,450 won on April 1 and rose sharply to close at 34,150 won on Thursday. Doosan Fuel Cell also showed a similar curve, rising to 7,350 won from 5,290 won during the same period.

Along with the sale of the units, Doosan Heavy is expected to separate its own healthy subsidiaries ― Doosan Infracore and Doosan Bobcat ― from its control and put them under Doosan Corp.'s direct control. This is aimed at preventing Doosan Heavy's financial risks spreading to the subsidiaries.

When the two subsidiaries are away from Doosan Heavy's control, their credit ratings are expected to be improved, allowing Doosan Corp. to issue new bonds by using them.

Doosan Group's headquarters in Jung-gu, Seoul / Yonhap

However, questions are remaining whether Doosan Group's restructuring plan can salvage itself in a long-term prospective, because the units involved in the plan are believed to be the drivers for future growth.

"Doosan Solus' portfolio includes OLED display materials and copper foils for electric vehicle batteries," Hanwha Securities analyst Kim Joon-hwan said. "Starting from revenues from copper foil in the second half of this year, its sales mid- and long-term growth potential is worth notice."

SK Securities analyst Na Seung-doo casted a rosy outlook on Doosan Fuel Cell because the company is expected to capitalize on the government's drive to expand hydrogen fuel cell market in the country.

Separating Doosan Infracore and Doosan Bobcat is also a concern for Doosan Heavy. Since the two companies are profitable subsidiaries, Doosan Heavy will not be able to enjoy consolidated profits stemming from them.

After handing over Infracore and Bobcat to Doosan Corp., Doosan Heavy will only have loss-making Doosan Engineering & Construction (E&C) under its wing. Doosan Heavy's liquidity crunch is also attributable to Doosan E&C, as the former continued its support to the construction firm despite its own difficulties.

Both Doosan Heavy and Doosan E&C are suffering from aggravated business environment. Doosan Heavy's bottom line has been deteriorating for years as its portfolio focusing on coal fire and nuclear power failed to keep up with the global transition to renewable energy. Doosan E&C also has posted consecutive deficits recent years due to the protracted downturn in the domestic construction market.