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Shares of POSCO, others stung by graft probes

Shares of South Korea's top steelmaker POSCO and several other firms have been hit hard by a series of ongoing prosecution probes into alleged corruption that has raised concerns over their outlooks.

The investigations began over two weeks ago after Prime Minister Lee Wan-koo declared an "all-out war" on corruption in an apparent attempt to prop up weak public support for President Park Geun-hye.

Share prices of POSCO, the nation's top steelmaker, hit fresh lows in recent weeks as a probe into a suspected slush fund held by its construction unit expanded into a groupwide investigation, including its former chairman and management.

Prosecutors earlier this month raided the POSCO Engineering & Construction Co. head office to look into allegations the company created massive slush funds overseas by exaggerating the amount of money needed to pay subcontractors in Vietnam.

POSCO's market capitalization has dropped by 287.7 billion won ($259.5 million) this year, seeing its rank on the KOSPI market fall from fifth to ninth place.

Its stock price slipped to a 52-week low Monday and inched up 0.82 percent to end at 244,500 won Tuesday on bargain hunting.

Daewoo International Co., a trading affiliate of POSCO, has also suffered a setback while prosecutors are delving into former stake investments and M&As under POSCO former leadership. POSCO in 2010 acquired a 60 percent stake in Daewoo for 3.37 trillion won.

Incumbent POSCO chairman Kwon Oh-joon reportedly considered selling the stake due to its low profitability in overseas projects, but Daewoo's circumstances recently rebounded after the successful development of gas fields in Myanmar.

Although analysts gave an upbeat outlook on Daewoo's earnings this year, its stock price fell 9.2 percent this month to close at 26,550 won Tuesday.

Market watchers are worried that the ongoing probe may delay a joint project by Daewoo International and POSCO E&C to build an auto factory in Saudi Arabia, dashing hopes for clinching a lucrative deal this year.

Dongkuk Steel Mill Co., another local steelmaker, took a hit after prosecutors raided its Seoul offices over the weekend, looking into alleged embezzlement and tax evasion. That sent its shares tumbling 6.51 percent to 5,810 won Monday.

Dongkuk Steel is suspected of stashing about 10 billion won in illegal funds in U.S. accounts while in the process of purchasing raw materials and avoiding paying taxes, according to prosecutors.

Keangnam Enterprises Co., a Seoul-based builder under a debt workout program, was raided by prosecutors on March 18, which many speculated may be linked to scrutiny of overseas energy resource development projects pushed by the previous Lee Myung-bak government.

The builder faces allegations it embezzled money from a state-led Russian oil exploration project that was suspended in 2010 after disappointing results. Out of the 35 billion won it received for the overseas resources project, Keangnam Enterprises allegedly misappropriated 10 billion won, according to officials.

Stock trading of Keangnam's shares was suspended as of March 11. The Korea Exchange, the main bourse operator, on Monday said it has been taking steps to delist the company. (Yonhap)

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