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| People walk past Doosan Group's headquarters in Jung-gu, Seoul, April 8. Yonhap |
Low value of salable units pressures Doosan to unload Bobcat
By Nam Hyun-woo
There has been a lukewarm response over the planned sale of Doosan Solus and other Doosan Group affiliates in accordance with creditors' request as a prerequisite to prevent the group from complete fallout. The cash-strapped conglomerate appears to be under pressure to unload its stakes in heavy equipment unit Doosan Bobcat.
According to the Korea Exchange, Doosan Bobcat ended at 31,850 won on Monday, up 17.74 percent from last week. Its parent company, Doosan Infracore also jumped by 4.89 percent to end at 6,860 won.
The share prices of the construction equipment firms have been on a sharp rise since last week, as investors were apparently betting on the unloading of the group-owned Bobcat stake, stock analysts said, in an effort to create "enough cash flow" and salvage its heavily indebted flagship unit, Doosan Heavy Industries & Construction.
On Monday, local reports claimed the group and its two main creditors ― the Korea Development Bank (KDB) and the Export-Import Bank of Korea (Eximbank) ― signed a binding agreement under which the creditors have the rights to sell Doosan's assets at their discretion if the group fails to repay its debts due to the protraction of asset sales.
So far, Doosan Heavy has received 3.6 trillion won ($2.99 billion) in emergency financial relief from the state-run lenders. In return for the extension, Doosan Group clarified it will secure at least 3 trillion won by unloading assets and stakes in its key subsidiaries.
Doosan Group is currently attempting to sell materials unit Doosan Solus and a number of other businesses and real estate assets, but failing to show tangible outcomes as investors have so far paid little attention.
The non-binding agreement signed between the group and the lenders means if the group fails to raise the amount of cash it earlier vowed to the creditors, then the creditors will take control of Doosan's self-salvaging plan and liquidate assets regarded and viewed as valuable, including Bobcat. Doosan Heavy has a 38.41 percent stake in Doosan Infracore, which holds a 51 percent stake in Bobcat.
Though the KDB denied that the creditors signed the agreement, officials familiar with the matter said the state lenders reportedly provided Doosan with "a deadline" to sell its units, which is virtually a demand for Doosan to unload Bobcat.
The pressure on Doosan is growing as the Doosan Solus sale bid is losing steam. No visible progress has been made over the planned sale as a local private equity firm, SkyLake and a number of potential buyers including Lotte Chemical and SKC did not participate in a following bidding.
"It seems clear that Doosan does not want to sell Bobcat due to its growth potential, but the low valuation of Doosan Solus and other salable assets will pressure the group to eventually unload its Bobcat stakes."
Analysts also see the potential of Bobcat being sold for the Doosan Group's survival.
"The majority of Doosan Bobcat sales comes from the United States and Europe and it is not directly run by Doosan Group's owner family," Yuhwa Securities analyst Yang Hyung-mo said. "Given Doosan Infracore has been mired in a legal battle regarding its Chinese unit and prevented from overseas sale due to national security, the chance of Bobcat's standalone sale seems higher."
Doosan Bobcat posted 86.8 billion won in operating profit in the first quarter, down 23 percent from a year earlier, due largely to the COVID-19 outbreak, analysts said. However, Bobcat will likely bounce back when the U.S. launches a stimulus policy to cope with the economic fallout of the pandemic.
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