Steelmaker mired in controversial ‘Picity’ project

By Korea Herald
  • Published : May 3, 2012 - 19:11
  • Updated : May 3, 2012 - 21:36
Steelmaker mired in  controversial ‘Picity’ development project and patent suit

POSCO, the world’s fourth-largest steelmaker, is mired in the influence-peddling scandal involving “Picity.”

Suspicious eyes are looking to relations between POSCO and JE&T chief Lee Dong-jo after prosecutors summoned Park Young-joon, a former vice commerce minister and close confidant to President Lee Myung-bak, to question him about the corruption scandal.

While businessman Lee allegedly managed Park’s slush funds, his company JE&T turned out to have been a subcontractor for POSCO since 2008. POSCO Engineering & Construction, a subsidiary of POSCO, is under suspicion that it received business favors when it was selected as the builder of the “Picity” where the nation’s largest shopping complex will be built in Yangjae-dong, southern Seoul.

More than 2.4 trillion won ($2.1 billion) is expected to be poured into the construction. Former chairman of the Korea Communications Commission Choi See-joong was recently arrested, suspected of taking hundreds of millions of won from the Picity developer.

JE&T chief Lee is suspected of taking money from the developer to Park in return for a promise to help the developer obtain city approval of the project.

The original builder of Picity was Daewoo Motor Sales Corp. and Sungwoo Construction and Engineering but they ended up going through workouts as the business approval got delayed.

POSCO Engineering & Construction signed an memorandum of understanding with Woori Bank in July 2010 regarding the company’s participation in the Picity project as a builder, exclusively participated in the bidding last May and was selected as the new builder in March.

Lee Jeong-bae, former head of Picity, reportedly voiced complaints that Woori Bank and POSCO Engineering & Construction snapped away the business.

JE&T’s total sales, which was 2.6 billion won in 2006, saw an eightfold rise in 2010 to 22.6 billion won, after it was selected as a partner by POSCO. More than 70 percent of JE&T’s total sales is known to rely on POSCO.

“The selection of the Picity builder was finished through an appropriate process, and is not at all a subject of suspicion. We are worried because random guesses are flying around,” said an official at POSCO.

The patent suit against Nippon Steel, which turned its back on POSCO after being a faithful partner for the past 40 years, is also a headache for the company. The Japanese company is seeking to suspend POSCO’s production and sales of the electric steel sheets, arguing that it infringed its technology patent.

Insiders point out that POSCO's excessive M&A drive was another factor harming financial soundness of the company. The number of its subsidiary companies expanded from 23 in 2007 to 70 last month, according to the Fair Trade Commission. The purchase of Daewoo International in 2010 for 3.37 trillion won which was above the market price is considered to have been a big blow.

POSCO’s first-quarter operating profit marked 422 billion won, which is a decrease by 54.2 percent compared to the same period last year and also the lowest quarterly earning since the first quarter of 2009. The company’s debts doubled this year to 26.8 trillion won from last year’s 12.2 trillion won and Standard & Poor’s downgraded last year POSCO’s credit level from A to A-.

In hope to regain its financial strength, POSCO sold off last month some of its domestic shares of SK Telecom, KB Financial Group and Hana Financial Group worth more than 580 billion won.

By Park Min-young  (