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Trillions of won spent on Posco M&As

Mar 19,2015
Former Posco Group Chairman Chung Joon-yang allegedly invested some trillions of won in questionable mergers and acquisitions during his term, according to data from a website specializing in corporate statistics.

The 67-year-old has been recognized by prosecutors as the driving force behind alleged tax evasions and a multitude of suspicious mergers and acquisitions orchestrated by the nation’s No. 1 steelmaker that resulted in a massive financial blow.

The figures this week come at a time when prosecutors have expanded their investigation into the alleged slush fund amassed by Posco Engineering and Construction (E&C) worth billions of won. Chung has also been pinpointed as a key figure in the creation of that illegal account.

According to Chaebul.com, a website that follows the nation’s major conglomerates, when Chung led the group from February 2009 to March 2014, Posco invested 7.66 trillion won ($6.8 billion) across 13 ventures, including mergers and acquisitions worth over 30 billion won each and investments on companies’ shares worth 100 billion won each.

“It’s hard to say whether the numbers are right or wrong,” a spokesman for Posco told the Korea JoongAng Daily. “It looks like they came from people in the investment banks.”

After Chung became chairman in 2009, Posco first acquired an 85 percent stake of Daehan Steel for 60 billion won. Later that year, it also bought a 3.68 percent stake in KB Financial Group for 250 billion won.

The next year, Posco opened its wallet even wider, completing its biggest-ever M&A by acquiring a 60.31 percent stake of the trading company Daewoo International for 3.37 trillion won. It then purchased a 40.38 percent stake in Sungjin Geotec, an industrial equipment manufacturer, to merge it with its affiliate Posco Plantec.

Investments continued overseas. In 2010, Posco acquired a 49 percent stake of Australian iron ore maker American Metals & Coal International (AMCI), the U.S.-based parent company of AMCI Pty. Ltd. for 194.7 billion won, and 15 percent stake of Roy Hill Holdings for 1.779 trillion won. It then acquired a 66.39 percent stake of Thainox Stainless Public in Thailand for 395 billion won and spent 826.7 billion won to buy a 70 percent stake of Indonesian steelmaker PT. Krakatau.

Before Chung became the chairman, Posco had just 30 affiliates, though it added 41 more by 2011, leading some insiders to worry about such an aggressive push. Among its affiliates, 18 were struggling financially from 2009 to 2012, according to the industry.

Sungjin Geotec was one of the most controversial cases that Posco operated. According to an audit report filed by its accounting firm in 2008 and 2009, the company was questioned over its sustainability.

The value for Sungjin Geotec was only 8,300 won per share, while Posco paid 16,330 won per share in 2010.

At the time, there was speculation that one of the key aides of former President Lee Myung-bak had influenced the steelmaker. Jeon Jeong-do, the major shareholder and the chairman of Sungjin, was known to be a close associated of the former president’s older brother, Lee Sang-deuk.

BY KWON SANG-SOO [kwon.sangsoo@joongang.co.kr]


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