Doosan E&C spins off construction assets

Doosan Tower in central Seoul on Tuesday. Doosan Engineering and Construction is spinning off assets to sell. [YONHAP]

Doosan Engineering and Construction is spinning off its construction unit as it tries to find a buyer.

Doosan Engineering and Construction (E&C) Monday reported it is spinning off certain construction-related assets and liabilities into a newly established Valuegrowth Corporation. They include uncollected receivables like a failed apartment development in Incheon and a resort in Pocheon, Gyeonggi.

“The division reflects Doosan E&C’s effort to make the company more sellable,” said an industry source. “Core assets remain in Doosan E&C while less tempting assets are divided to Valuegrowth.”

Selling Doosan E&C has been a priority for money-bleeding Doosan Group. It was delisted in March after all its shares were purchased by Doosan Heavy.

Following the spinoff, Doosan E&C will be left with 2.23 trillion won ($1.85 billion) in assets and 1.7 trillion won in debt, while Valuegrowth will have 250 billion won in assets and 80 billion won in debt. Doosan E&C will own 69.5 percent of the common stock of Valuegrowth, while the remaining 30.5 percent will be sold to Doosan Cuvex for 80 billion won.

Doosan Cuvex is a Doosan affiliate that owns and manages golf courses and a resort in Chuncheon, Gangwon. It is 36.3 percent owned by Doosan Heavy Industries & Construction, 29.2 percent by Doosan Corporation and 24.66 percent by Doosan Infracore.

Nice Investors Service on Monday lowered Doosan E&C’s credit from B to B minus, citing financial instability.

“The financial stability of the company is low — its debt ratio as of March exceeded 400 percent, while its total borrowings to total assets were 30 percent,” wrote Nice in a report released Monday.

In return for receiving 3.6 trillion won in aid from creditors, Doosan Group in April said it would pay back 3 trillion won in debt by selling off assets as part of a turnaround plan. Last week, Doosan Group Chairman Park Jeong-won said Doosan Heavy will raise a trillion won this year by issuing new shares and selling assets.

As Doosan Heavy continues to struggle, rumors that it is selling its 36.27 percent stake in Doosan Infracore are also circulating. “Nothing has been confirmed,” said Kim Ji-hyang, a spokesperson for Doosan Group.

Doosan Infracore, a construction equipment maker, is a core Doosan affiliate. Some are speculating that Doosan Heavy will sell shares in Doosan Infracore and purchase shares in Doosan Bobcat, another construction equipment manufacturer that is 51.05 percent owned by Infracore.

KB Securities says the chance of Doosan Infracore selling its shares in Doosan Bobcat is unlikely.

“The sales value [of Doosan Infracore] drops if Bobcat, which accounted for 62.9 percent of the total operating profit of construction equipment affiliates, is spun off,” wrote Jeong Dong-ik, an analyst at KB Securities. “Also, the debt [of Infracore] as of the first quarter was 2.9 trillion won, which is 12 times the 244.2 billion won it is projected to earn in operating profit this year.”

Doosan Infracore is projected to have 1.87 trillion won in sales in the second quarter, down 14.9 percent on year. Its operating profit is projected to dip 48 percent on year to 154.5 billion won in the second quarter.

BY JIN MIN-JI [jin.minji@joongang.co.kr]