After the sale of key units of its flagship affiliate Dongbu Steel fell through, the group will now have to ask the steelmaker’s creditors to step in ― this means there is no hope of the steelmaker staying in one piece.
On Tuesday, POSCO, the nation’s biggest steelmaker, gave up its bid for Dongbu Steel’s Incheon plant and Dongbu Power Dangjin Corp., citing low profit margins and excessive financial burdens.
For Dongbu Group, selling off the pair was vital for raising the cash it needed to get back on its feet. It also meant that despite losing some of its key assets, the company would get to hang onto Dongbu Steel, as some of the other units would have remained under Dongbu.
The chief deal breaker, according to Korea Development Bank, the main creditor bank for Dongbu Steel, was Dongbu Group founder and chairman Kim Jun-ki.
Kim’s central fault was that he did not want to offer his only son’s stake in Dongbu Fire Insurance as collateral for the plans to restructure Dongbu Steel.
The chairman rejected the request in order to retain his and his son’s managerial rights in the group’s financial businesses that are represented by Dongbu Fire, which is Dongbu’s de facto holding company. Kim Nam-ho, the chairman’s son, is the largest shareholder in Dongbu Fire Insurance with a 14.06 stake, meaning the two would lose control over the group’s financial affiliates without it.
But without the collateral, KDB saw the deal with POSCO as dead on arrival.
Market analysts criticized Kim’s stance, saying that he should step down to take responsibility. They said that by refusing to let go of the group’s core business, Kim is now at the risk of forfeiting the entire manufacturing side of his company ― one Kim built from scratch in his 20s.
Now, fate has taken its turn, as Dongbu Steel ― and possibly a number of other money-losing manufacturing affiliates ― will be sold on the market when the creditors take over in July.
Some critics blame the government for pushing too hard and too fast for a deal with POSCO ― there were rumors that a number of foreign buyers had been interested in the two Dongbu Steel units ― but in the end, all remains is the fact that Kim was not able to save the company he had worked so hard to build.
This week, Kim was spotted by the media on several occasions, his head hanging low and his face weary. Even though all the odds are stacked against him, the chairman continues to say that Dongbu will not go down without a fight. Only time will tell.
By Seo Jee-yeon (email@example.com)