POSCO said the steel giant sold its 38 percent stake in POSCO Engineering and Construction Co., one of its affiliates, for 1.24 trillion won to Public Investment Fund, a state-owned fund in Saudi Arabia. The deal was completed on Sept. 30.
The steel maker said the Saudi sovereign-wealth fund paid cash for its 1.08 million old and 5.08 million new shares of POSCO E&C.
The steel maker said it received the LOI from the Saudi sovereign wealth fund last August, and the deal was completed in 13 months. With the deal concluded, POSCO E&C now has a 52.8 percent stake in itself, while PIF holds 38 percent stake and others hold around 9.2 percent stake in the construction arm of POSCO.
POSCO was able to sell its stake in POSCO Construction because Chairman Kwon’s strategy to streamline POSCO’s financial matters coincided with Saudi’s plan to prepare for the “post-oil age” by expanding investments in non-petroleum areas.
POSCO signed an MOU with the Saudi state wealth fund on a strategic cooperation while President Park Geun-hye was visiting Saudi Arabia as a state guest last August, leading a group of Korean business leaders, including POSCO Chairman Kwon. President Park toured four nations in the Middle East last year including Saudi Arabia and the UAE.
The nation’s leading steelmaker is going through a hard time, both financially and politically. Due to the oversupply of Chinese products and decreasing steel demand in the global market, as well as questionable investments, the company’s overall revenues have plunged. The group’s construction arm, POSCO E&C, is also under investigation for allegedly running a 10.7 billion won ($9.4 million) slush fund in Vietnam, considered part of the legacy of former chairman Chung Joon-yang.
Kwon formed an emergency management reform committee in May, had two meetings per week over the past 72 days and invited opinions from 200 experts to restructure the organization.
Of the five major reforms Kwon announced, the highlight was the managerial reward and punishment system, which Kwon said will be stronger than ever. The chairman also said he will upgrade the company’s overall business portfolio to improve its competitiveness in the steel industry. One of the key steps was shutting down uncompetitive affiliates and developing more high-end technology. According to the second quarter performance that was also announced on Wednesday, the company had 15.18 trillion won in revenue, down 9.1 percent from a year earlier, and 686 billion won in operating profit, down 18.2 percent from a year ago.
The company said it will try to increase premium steel products from last year’s 1.3 million tons to 2.5 million tons by 2017 and increase car steel sheet sales from last year’s 8.3 million tons to 9.5 million tons by 2017.
As part of improving the overall business portfolio, the company will focus more on steel, materials, energy and trading and will try to reorganize the group to reduce the number of insolvent affiliates in Korea by 50 percent. It will also reduce overseas businesses by 30 percent by 2017. In May, POSCO decided not to give any further financial support to its affiliate POSCO Plantec, which had 189.1 billion won in operating losses last year.
The Public Investment Fund (PIF) was established by Royal Decree No. M/24, dated 25-06-1391H corresponding to 17-08-1971. The purpose of establishing the PIF was to provide financing support to productive projects which are of a commercial nature and are strategically significant for the development of the national economy and cannot be implemented by the private sector alone either because of insufficient experience or inadequate capital resources or both.
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