By Lee Hyo-sik
Staff Reporter
Dongbu Steel, the nation's mid-tier steel producer, has decided to dispose of stakes in its life insurance affiliate and commercial property to secure cash, after being hit hard by rising debt and falling sales amid worsening business conditions.
The cash-strapped steel maker held a board of directors' meeting Dec. 24 and decided to sell its 2.38 million shares in Dongbu Life Insurance to Dongbu Insurance, the group's de facto holding company, for 35.5 billion won, or 14,941 won per share.
The company also plans to sell its stake in the Dongbu Financial Center in southern Seoul, also to Dongbu Insurance for 16 billion won. Through the two transactions, the struggling steel maker will receive a total of 51.5 billion won in cash from its non-life insurance affiliate.
An executive of Dongbu Group, led by Chairman Kim Jun-ki, said it has become inevitable for Dongbu Steel to secure more liquidity to cope with the deteriorating business environment in the wake of the global credit crunch and economic downturn, dismissing a market rumor that the steel producer was suffering from a liquidity squeeze.
``Other major steel manufacturers at home and abroad are also rushing to dispose of assets for cash. It's simply untrue that our steel unit is facing a cash shortage. Additionally, Dongbu Insurance's stake acquisition of Dongbu Life Insurance is the first step toward the group's move toward a financial holding company structure,'' the official said.
Korean steel makers, like their peers abroad, are struggling with deteriorating business conditions as global demand has been falling rapidly as a result of the worldwide economic slowdown. The 2009 outlook is even bleaker as China, India and other major steel consumers will take the full blunt of the global downturn.
Dongbu Steel's move to sell assets for cash came two weeks after its major creditor, the Korea Development Bank (KDB), demanded the steel producer carry out a full-scale self-rescue plan to cut costs and obtain more cash.
The state-run bank has threatened that if the company does not restructure itself for cost reductions and greater efficiency, it may impose a creditor-initiated workout program or dispose of its stake in the firm.
Currently, the KDB has a 10.1 percent stake in Dongbu Steel. If the bank dumps company shares, it would deal a severe blow to the struggling manufacturer.
leehs@koreatimes.co.kr
