Doosan in Crisis, Considering Affiliate Sales and Private Fund Contributions... What Is the Next Move?

Doosan Heavy Industries Additional Voluntary Retirement and Leave of Absence Review Likely Mentioned... "Under Review but No Decision Made"

On the 27th, the Doosan Tower building in Dongdaemun-gu, Seoul, is visible as the government decided to inject 1.6 trillion won into Doosan Heavy Industries, which is experiencing financial difficulties, through the Korea Development Bank and the Export-Import Bank of Korea. Photo by Kang Jin-hyung aymsdream@

[Asia Economy Reporter Ki-min Lee] As measures for Doosan Heavy Industries' self-rescue plan such as the sale of Doosan Group affiliates and private contributions from the controlling family are being discussed, attention is focused on the next steps.

According to the industry on the 11th, Doosan Group is considering various options including the sale of new businesses such as Doosan Solus, changes in the governance structure, private contributions from the controlling family, additional voluntary retirements, and some temporary shutdowns. The general industry view is that it will be difficult to cover about 2 trillion won of non-bank borrowings (such as corporate bonds) maturing this year out of Doosan Heavy Industries' total debt of 4.9 trillion won.

First, the review of the sale of Doosan Solus shares is progressing rapidly. According to the investment banking (IB) industry, negotiations are underway between Doosan Group and the private equity fund (PEF) manager Skylake Investment for the sale of Doosan Solus. Doosan Solus is a company spun off from Doosan Corporation, with Doosan Corporation and Chairman Park’s special related parties holding 50.48% of common shares and 11.04% of preferred shares. The common shares are the subject of the sale, and the two sides are reportedly negotiating the sale price, including management rights, in the range of 600 billion to 800 billion won. After reports about the sale of Solus shares surfaced, Doosan issued a disclosure titled “Clarification on Rumors or Reports (Unconfirmed)” yesterday, stating, “No specific decisions have been made yet,” and “We will re-disclose when specific details are decided or within one month.” Additionally, plans to sell Fuel Cell, a fuel cell affiliate considered a new growth engine of Doosan, sell Doosan Construction, a 100% subsidiary of Doosan Heavy Industries, and change the governance structure of subsidiaries such as the ‘cash cow’ InfraCore and the grandchild company Bobcat are also being discussed as part of the self-rescue plan.

The next step being discussed is additional voluntary retirement at Doosan Heavy Industries. Earlier this year, Doosan Heavy Industries accepted voluntary retirement applications from about 2,600 employees aged 45 and older. About 650 employees applied for voluntary retirement, and the process was completed earlier this month. However, the industry analyzes that this is insufficient to meet Doosan Heavy Industries’ target to reduce fixed costs such as labor costs amid creditors’ demands for strong restructuring.

Doosan Heavy Industries is also considering some temporary shutdowns. In this case, it is expected that the company will select mainly idle personnel rather than shutting down an entire business group (BG). Last month, Doosan Heavy Industries sent a cooperation letter to the Doosan Heavy Industries branch of the Korean Metal Workers’ Union (the union), stating that the company would pay 70% of employees’ wages during the shutdown period.

Whether Doosan Heavy Industries will implement temporary shutdowns is expected to be discussed in the wage collective bargaining (labor-management negotiations). The union previously sent a statement to the company emphasizing that decisions on the scope and implementation of temporary shutdowns should be made through consultation rather than unilateral notification. The first meeting for Doosan Heavy Industries’ wage collective bargaining is scheduled for the end of this month. The industry expects that about 150 billion to 200 billion won in fixed costs will be reduced through additional voluntary retirements and some temporary shutdowns. However, Doosan Heavy Industries issued a clarification disclosure stating, “We will re-disclose when specific details are decided or within three months.” A Doosan Heavy Industries official also said, “We are reviewing paid temporary shutdowns for some idle personnel and additional voluntary retirements, but nothing has been decided yet.”