[Click eStock] "Doosan Bobcat, Concerns Eased by Parent Company's Financial Structure Improvement"

Doosan Heavy Industries Alleviates Concerns Over Utilizing Doosan Bobcat Shares
Samsung Securities Maintains Doosan Bobcat Target Price at 55,000 Won

[Image source=Yonhap News]

[Asia Economy Reporter Gong Byung-sun] Doosan Heavy Industries & Construction, the parent company of Doosan Bobcat, has begun improving its financial structure. Concerns that Doosan Heavy Industries might use its stake in Doosan Bobcat for financial restructuring are expected to ease.

According to Samsung Securities on the 29th, Doosan Heavy Industries decided on the 19th to contribute its subsidiary Doosan Construction's shares in kind to a corporation to be established by a private equity fund (PEF) and group affiliates. At the same time, Doosan Construction plans to carry out a third-party allotment paid-in capital increase to the said corporation.

With this decision, Doosan Heavy Industries will transfer management rights of Doosan Construction to the corporation. This marks a kind of distancing from Doosan Construction, which had previously received substantial financial support from Doosan Heavy Industries.

Additionally, Doosan Heavy Industries announced plans for a paid-in capital increase. Assuming an issue price of 18,100 KRW, the total scale of the capital increase is about 1.5 trillion KRW. Doosan Heavy Industries stated that 700 billion KRW of the raised funds will be used to repay debt, and the remaining balance will be invested in new businesses. As of the end of the third quarter this year, Doosan Heavy Industries' separate net borrowings are estimated at 4.2 trillion KRW. Net borrowings refer to the difference between short- and long-term borrowings, bonds, and current portion of long-term debt minus cash and short-term deposits.

These moves by Doosan Heavy Industries are expected to improve investment sentiment toward Doosan Bobcat. Currently, Doosan Heavy Industries is the largest shareholder holding 51% of Doosan Bobcat's shares and maintains a price return swap (PRS) contract with financial institutions based on about 10% of Doosan Bobcat's shares.

Concerns among some investors that Doosan Heavy Industries might utilize part of its stake in Doosan Bobcat are expected to be dispelled by this decision. Investors expressed worries because Doosan Bobcat's shares are Doosan Heavy Industries' largest asset and are listed shares, making them easily liquidatable.

Samsung Securities analyst Han Young-soo said, "Despite solid performance, Doosan Bobcat has faced valuation discounts compared to overseas competitors due to these concerns," and added, "Doosan Heavy Industries' financial restructuring will have the effect of alleviating valuation discounts through improved investment sentiment for Doosan Bobcat."

Accordingly, Samsung Securities maintained a 'Buy' investment rating and a target price of 55,000 KRW for Doosan Bobcat. The closing price on the 26th was 37,800 KRW.