Posco looks to trim its subsidiaries for liquidity

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Posco looks to trim its subsidiaries for liquidity

Korea’s steel giant Posco is planning to sell off unhelpful subsidiaries it acquired over the last two years in order to secure more liquidity as its first-quarter profits halved on-year.

Posco CFO Park Ki-hong confirmed to a local newspaper that the company is undergoing restructuring of its units with an aim to shut down areas that are not directly associated with the steelmaker’s main business.

Park mentioned that the company primarily intends to sell units of Daewoo International. Posco acquired a 67.9 percent stake in Daewoo International, a trading company that focuses on resource development, in November 2010. The steelmaker embraced 29 subsidiaries of the trading firm, although most of their businesses are not related to steelmaking.

The original purpose of buying such a significant amount of shares in Daewoo was to combine the trading company’s resource development expertise with Posco’s steel production.

Other “unnecessary” units for Posco include the electronics and apparel subsidiaries. Posco also plans to trim down businesses that overlap with each other, Park said.

Since global credit rating agency Standard & Poor’s downgraded the world’s third-largest steelmaker’s credit level from A to A- last November, rumors have been circulating that the company is suffering from liquidity shortages. The rumors gained momentum when Posco unexpectedly sold off 580 billion won ($510 million) worth of shares in SK Telecom, KB Financial and Hana Financial in April.

The steelmaker posted 9.46 trillion won in sales and 422 billion won in operating profit for the first three months of the year. The earnings have almost halved from a year ago. Posco has also been under criticism for merging too often in recent years. According to the Fair Trade Commission, the number of Posco’s subsidiaries shot up from 36 in 2009 to 70 as of February this year.

By Song Su-hyun [ssh@joongang.co.kr]

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