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Restructuring may spread to more firms

POSCO and Hyundai Heavy’s push for restructuring raises alert on ripple effect

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Published : 2012-10-30 20:02
Updated : 2012-10-30 20:02

Restructuring by POSCO and Hyundai Heavy, both of which are domestic market leaders in their respective industries, is raising alerts on the spillover effect to other big businesses.

POSCO, the nation’s top steelmaker and eighth-largest business group by assets, confirmed on Tuesday that it has recently put its three retail companies on sale in a bid to clear off non-core businesses by the year-end. Retail businesses to be auctioned allegedly in the form of a package deal include Diamond Plaza, a department store in Ho Ch Minh City, Vietnam; Central Square, a multi-purpose shopping mall in Busan; and Daewoo Department Store in Changwon, South Gyeongsang Province.

The first two retailers are owned by POSCO Engineering and Construction, while Daewoo Department Store is owned by Daewoo International, the trading arm of POSCO.

An official from the POSCO PR team was cautious of the move being interpreted as part of the company’s restructuring efforts, claiming that the non-core business clean-up was already mentioned by the firm’s top agreement during a briefing the company’s second-quarter business performance in July. He also declined to comment on the size of the deal.

Industry watchers, however, consider POSCO’s sale of properties within the year as an apparent restructuring bid, followed by the firm’s mergers of overlapped businesses among its affiliates and cost reduction initiative.

POSCO has faced mounting pressure on taking preemptive measures to brace for worsening business conditions for the next few years. Earnings of the world’s fourth-largest steelmaker keep falling this year, affected by low demand amid the global economic downturn oversupply by Chinese steel makers. The company’s operating profit fell 18 percent to 1.062 trillion won ($963 million) in the third quarter from a year earlier.

Hyundai Heavy Industries, the nation’s top shipbuilder, also took a cost-cutting measure by launching an early retirement plan for its senior employees early this month. The company’s rare move shocked the entire shipbuilding industry as it is the first time the shipbuilder plans to cut its workforce in its 40-year history. The nation’s ninth-largest conglomerate by assets, which boasts of its no-layoff policy, has a record in service years of employees at 17.9 years on average.

The company’s early retirement plan targets senior employees aged over 50 in supporting areas, and the company will offer applicants at maximum 60 times their basic income. An official from the PR team said its early retirement plan is carried out on a voluntary basis, different from a forced lay-off.

The shipbuilding industry is one sector, hit hard by the global economic downturn. The shipbuilding orders of Hyundai Heavy fell 40 percent to 14.2 trillion won ($13.1 billion) for the first nine months of this year from 23.9 trillion won ($22 billion) a year ago.

With the outlook for the shipbuilding industry remaining grim next year, industry watchers predicted the company will make continued restructuring efforts to increase cash reserves or cutting costs. It sold off its 3.2 million shares in Hyundai Motor Company last July and secured 704 billion won in cash.

Industry watchers said other big business groups under pressure for restructuring could launch similar measures, affected by the recent move of the nation’s two leading industrial groups and some of them could be opt for sizable lay-offs.

A rising number of mergers and acquisitions among listed companies will also signal a rise in lay-offs. According to the Financial Supervisory Service, 14 companies listed on the KOSPI market, the nation’s main stock bourse, noticed their M&A in the third quarter.

By Seo Jee-yeon (jyseo@heraldcorp.com)

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