Shares of a key firm in South Korea’s oldest conglomerate plunged yesterday, highlighting how a weak economy is hurting the nation’s biggest companies.
Doosan Heavy Industries & Construction Co’s stock slid as much as 9.9 percent after the Seoul-based firm announced a new share sale partly to improve finances, and said it would buy 300 billion won (US$267 million) in new equities of a troubled engineering affiliate.
Its share price touched the lowest since August 2004.
Market concerns about Doosan Group’s outlook have been growing. Shares of Doosan Heavy and holding company Doosan Corp were the biggest decliners on the KOSPI 200 in the past month.
Analysts in Seoul slashed price targets on Doosan Heavy, saying the new share sale plan was larger than expected. Rating firms have warned of cutting the debt ratings for Doosan Heavy, Doosan Corp and Doosan Engineering & Construction Co (Doosan E&C).
South Korean companies have struggled as falling global demand hurt exports and domestic economic growth has slowed — Doosan Group has been hit especially hard. Its engineering unit, whose shares Doosan Heavy is buying, is highly reliant on local business outside of Seoul that is performing even worse than in the capital.
Doosan Heavy itself is losing money and the government’s policy of phasing out nuclear power has also taken away a key profit-driver from it.
Doosan Heavy shares yesterday closed down 8.8 percent, while Doosan E&C fell 3.3 percent and Doosan Corp lost 0.7 percent. The KOSPI edged up 0.1 percent.
Doosan E&C may need to repay 145 billion won in debt on March 21 and 70 billion won in November. It also has 428 billion won of asset-backed debt that needs to be rolled over about every three months, according to rating firm NICE Investors Service.
While the share sale plans would somewhat alleviate Doosan E&C’s liquidity risk, there are still uncertainties about its operating performance outlook given an unfavorable industry environment, the ratings firm said in a statement yesterday.
Doosan E&C plans to issue 420 billion won of new shares to secure cash after suffering a massive loss last year.
Doosan Heavy aims to raise about 958 billion won in total by issuing new shares and selling assets. The proceeds would provide financial support to the construction unit.
Most investors will not subscribe to Doosan E&C’s new stock sale, KTB Asset Management fund manager Park Sung-shin said.
“Doosan Heavy is not in a good situation in terms of free cash flow. Maybe I need to be cautious on the stock for a while,” Park said.
Doosan E&C’s debt-to-equity ratio surged to 553 percent at the end of last year, from 195 percent a year earlier, NICE said.
Doosan Heavy will continue to face a high debt burden considering its limited cash generating ability, NICE said.
It had 4.4 trillion won of total debt at the end of last year, compared with 377 billion won of earnings before interest, taxes, depreciation and amortization.
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