Doosan Group increased its cash holdings to 1 trillion won with sales of its affiliates, Doosan Engine and Doosan Portable Power, to pick up where it left off in May to rush its financial reform again. Industry sources said on Nov. 17 that Chairman Park Jung-won kicked off the reform moves to tide over the uncertain future facing the businesses by cutting debts to stop the excess outflow of the funds earned from business transactions to pay off interests. He wanted to get rid of the unstable financial structure.
The substantial reduction of its debt will improve cash flow and boost credit ratings, giving it breathing room.
The group’s debts amount to around 11 trillion won. The debt ratio came to 272.1 percent and the payment of interest on those debts alone costs 570 billion annually, which is around half of the group’s annual operating profit. The rival conglomerates earn two to three times more than what they pay in interests on their debt annually, but Doosan’s annual operating profit comes to only 1.8 times its interest payments.
In his New Year’s speech, Chairman Park called for the financial health for the group this year, warning that the group’s cash earnings had deteriorated and the group cannot ignore the situation for long, but should take actions to remedy it.
Starting in 2014, the group sold its affiliates until May last year, getting rid of Kentucky Fried Chicken, Doosan Dong A, Lathe Production Co., Doosan DTS, a boiler manufacturing unit and other profitable affiliates. The group once again felt it needed to tighten its belt to secure its financial health. The group announced the sale of Doosan Engine and the non-construction machinery part maker, the portable power business unit of Doosan Bobcat 16 in a bid to secure around 1 trillion won in cash.
The group has also been considering selling its stake in Doosan Bobcat, except the part of the stake that will keep the group’s managerial rights in the heavy machinery production affiliate. The group feels that the share price of the heavy machinery company should exceed 46,000 won per share not to lose money from the sale.
Doosan Heavy Industry has been considering cuts to the number of its executives and even merging units to cut costs after the government decided to forgo nuke- and coal-burning power plants. The company is expected to incur heavy losses. Sales from the company’s nuke and coal power plant equipment were around 70 percent of its annual sales, but the government policy to build no more nuke and coal power plants will constrict the market for equipment related to those power plants.
The group has also been busy attracting investors and turning its assets liquid. The newly-built structure in Bundang, Gyeonggi Province, where the group’s affiliates were to relocate in 2020, has been no exception and is being utilized to reduce its debts.
The credit ratings for the affiliates, Doosan and Doosan Heavy, has been rated “A-“ with Doosan Infracore (BBB) and Doosan Engine (BBB+). Doosan Construction got “BB+” while Doosan had no trouble issuing bonds worth 100 billion won with its credit rating. But the other affiliates had to issue BW bonds to secure funds to pay back their debts. Credit evaluation company officials said Doosan Group has to pare down its debts to around from 3 trillion won to 4 trillion won level to stabilize its financial structure.