Dongkuk Steel, 'Profitability Decline' Leads to Disposal of Stake in Chinese Subsidiary

[Asia Economy Reporter Jeong Dong-hoon] Dongkuk Steel has sold 90% of its stake in its Chinese subsidiary 'DKSC' to the Jiangyin local government in China. The restructuring of unprofitable businesses is expected to improve Dongkuk Steel's financial structure.

Dongkuk Steel judged that the low-priced general-purpose domestic market in China differs from Dongkuk Steel's business direction aiming for premiumization such as 'Luxteel', and it would be difficult to secure marketability and profitability in the future. Since last year, it has actively pursued various restructuring plans including suspension of sales by the Chinese subsidiary, business diversification, and sale, and recently decided to sell its stake to the Jiangyin local government.

Since its establishment in 2001, DKSC has recorded continuous business losses. The accumulated loss of DKSC over the past three years amounts to about 70 billion KRW. Dongkuk Steel recognized that DKSC would find it difficult to secure self-sustainability due to equipment disadvantages and lack of profitability improvement potential, and after about a year of negotiations with the buyer, sold 90% of the shares of DKSC and Union Logistics Co., Ltd. at a corporate value of approximately 97 billion KRW.

Through this sale, Dongkuk Steel improved its consolidated profit and loss and eliminated a guarantee burden of about 40 billion KRW related to borrowings. Dongkuk Steel expects to enhance its external credit rating by restructuring loss-making businesses.

Furthermore, based on the newly secured financial strength, it plans to expand further into markets with steady demand and high profitability for high value-added color steel sheets. According to the 'DK Color Vision 2030' global expansion strategy announced last year, Dongkuk Steel completed securing two bases in Vietnam and Mexico this year and plans to secure additional bases in Oceania, the United States, and Europe by 2030.

DKSC was established in December 2001 as a local Chinese subsidiary of Union Steel, a Dongkuk Steel Group company. It is a base capable of producing 250,000 tons of galvanized steel sheets and 180,000 tons of color steel sheets. It has been selling products to the Chinese domestic market. Union Logistics Co., Ltd. has been operating freight transportation, transportation-related services, and cargo handling in Jiangyin, China since 2010.