[NEWS IN FOCUS] Plagued by years of losses, Doosan Heavy may restructure

Financially distraught Doosan Heavy Industries & Construction might have to restructure to save its profitable affiliates as it tries to secure a much-needed lifeline from its creditors.

The plan currently in discussion would entail splitting off Doosan Heavy Industries’ ownership of Doosan Infracore, which partly owns Doosan Bobcat, into a separate firm and letting Doosan Corporation, the holding company of Doosan Group, acquire the stake later, according to analysts familiar with the conglomerate.

The Korea Development Bank (KDB) and the Export-Import Bank of Korea (Eximbank) are considering a plan to split off Doosan Infracore, a machinery manufacturer 36.27 percent owned by Doosan Heavy Industries, and Doosan Bobcat, a U.S.-based farm equipment manufacturer 51.05 percent owned by Doosan Infracore, from Doosan Heavy Industries.

The 36.27 percent stake of Doosan Infracore would become an investment firm on its own, while the rest will remain as Doosan Heavy Industries. Creditors are reportedly considering making Doosan Corporation, the holding company of Doosan Group which owns a 32.3 percent stake of Doosan Heavy Industries, acquire the investment firm.

The rest of Doosan Heavy Industries would be left with its main business and a 100 percent stake in Doosan Engineering & Construction, which has been posting immense losses in recent years.

“We believe it is likely that Doosan Heavy Industries will be split off as an investment firm and an operating firm, then Doosan Corporation will take over the investment entity,” said Yang Ji-hwan, an analyst at Daishin Securities. If Doosan Group sells Doosan Bobcat and Doosan Infracore at this point, it is inevitable that Doosan Group will take losses from the deal, as the two affiliates are massively underrated in their value.”

Doosan Heavy Industries has suffered net losses for six consecutive years since 2014, as the main plant-building business struggled despite income from subsidiaries and investments.

From the Moon Jae-in administration’s focus on phasing out nuclear power and instead focusing on renewable energy sources, Doosan Heavy claims to have lost around 10 trillion won ($8.1 billion) in possible contracts domestically.

The company builds nuclear power plants, thermal power stations and desalination plants and manufactures turbines and generators. For a number of years, the company mainly relied on its nuclear power plant business for profit.

The plant builder’s net loss narrowed to 104.37 billion won last year, compared with 421.73 billion won a year earlier, but the improvement was largely due to strong earnings at Doosan Infracore and Doosan Bobcat.

Doosan Heavy Industries responded Monday that while the company is working with creditors to come up with a rescue plan, it has never discussed any split-off plan with the two state-run banks.

“There is absolutely nothing that has been decided at this moment,” said Doosan Heavy Industries spokesperson Lee Jae-hyung. “The split-off plan is just a rumor, and that was never discussed within the company.”

Creditors believe that those two Doosan Group subsidiaries must be split off as their credit ratings, which have been negatively affected by Doosan Heavy Industries’ financial risks, could hinder the proposed financial support measures.

They are concerned that the financial risks from Doosan Heavy Industries’ plant-building business could extend even to its profit-making affiliates.

It is possible that the split-off plan will be used this time as Doosan Heavy Industries split off its 42.66 percent share of Doosan Engine, now known as HSD Engine, in 2018.

The two state-run creditors late last month decided to extend a 1 trillion won credit line to Doosan Heavy Industries by holding Doosan Corporation’s stake in Doosan Heavy, shares in other companies and real estate assets as collateral.

According to the KDB, Doosan Heavy has 4.9 trillion won in corporate bonds outstanding, 3 trillion won of those bonds held by domestic banks. Eximbank holds 1.4 trillion, and the KDB holds 780 billion won. Woori Bank, Standard Chartered Bank Korea and Nonghyup Bank are also major creditors.

Doosan Group’s shares in Doosan Solus, an electronics parts supplier, Doosan Fuel Cell and Doosan Mecatec, a chemical process equipment manufacturer, would be held as collateral under the plan. Doosan Tower, which is located in Jung District in central Seoul, would also be put up as collateral.

The Korea Development Bank and the Export-Import Bank of Korea also dispatched a team of consultants to monitor whether Doosan Heavy Industries will carry out its previously announced self-rescue plan.

The company last month asked its 6,700 employees to go on leave with reduced pay and also offered voluntary retirement to employees aged 45 and older. The plan applied to a total of 2,600 employees, or 39 percent of the total workforce.

BY KO JUN-TAE [ko.juntae@joongang.co.kr]