South Korea: KG Group gets Corporate Watchdog's Approval to Takeover Dongbu Steel
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As per the latest updates, South Korea's corporate watchdog, the Fair Trade Commission (FTC), approved Tuesday the takeover of Dongbu Steel Co., South Korea's fifth-largest steelmaker by sales, by a KG Group-led consortium.
In April 2019, Dongbu Steel's largest shareholder, Korea Development Bank (KDB) had selected a consortium comprised of KG Group, a local logistics and chemical business operator, and a Seoul-based private equity firm, Cactus Private Equity, signed a deal with creditors to buy a majority stake in Dongbu Steel for 360 billion won (USD 304 million). South Korea's domestic steelmakers such as Posco, Hyundai Steel, Dongkuk Steel Mill and SeAH Steel had turned a blind eye to acquire Dongbu Steel amid its inflating losses and questions over a rebound from the market downturn.
The steel mill that touched bottom
Founded in 1967 and acquired by Dongbu Group in 1982, Dongbu Steel produces and sells materials for auto, electronics and construction industries. Over the past couple of decades, it has been facing financial woes, especially after its parent company ran into a loan default after its billion-dollar investments in an electric furnace failed to pay off.
Dongbu Group now known as DB Group lost control of the steelmaker in 2014 and sold it off to creditors led by Korean Development Bank (KDB). With creditors attempting a split sale, package deal and several other methods to exit from the steelmaker, it went through a corporate workout program in 2015.
Nearly 85% of Dongbu Steel shares are held by creditors, with KDB having a 39.17% stake, NongHyup Bank, 14.9%, the Korea Export-Import Bank, 13.58%, and several other lenders having over 8%. Under the new deal, KG Group will hold 40% stake in the steelmaker.
Last year, the firm logged 65.61 billion won in operating losses, up from 11.77 billion won a year earlier. The firm is capable of producing 4.8 MnT of steel a year, with annual sales hovering over 2.5 trillion won in 2017 and 2018.
KG Group is a midsize conglomerate whose core business is chemicals. It has been expanding its portfolio in recent years. Dongbu Steel is its next attraction due to its production capacity of cold-rolled steel sheets in Dangjin, South Chungcheong Province, and color steel in the port city of Incheon. Cactus Private Equity is a fresh private equity fund founded in July last year.
