Restructuring in full swing

Chung Joon-yang POSCO chairman

POSCO sells non-core assets; SK decentralizes

POSCO, SK and other large business groups here, which have seen their bottom lines deteriorate, have begun taking preemptive measures to better cope with worsening business conditions at home and abroad.

Some conglomerates are rushing to dispose of non-core units to raise much-needed cash in anticipation of more unfavorable economic conditions, while others are overhauling organizational structures to cut operating costs and boost management efficiency.

POSCO, the world’s fourth largest steelmaker, has been active in selling non-essential affiliates this year in a bid to secure cash amid the ongoing global steel industry slump. It has been hit hard by plunging demand and high prices of iron ore and other raw materials.

Chey Tae-won SK Group chairman

The steelmaker has contacted E-Land and other retail firms here to dispose of its three retail units. POSCO affiliates currently operate a hybrid residential and commercial building in Vietnam, a department store in Changwon, South Gyeongsang Province, and a high-rise shopping mall in Busan.

“We have been integrating our subsidiaries to reduce operating costs, overhaul organizational structures, improve management efficiency and create synergy. At the same time, we are unloading non-core units to raise fresh funds,’’ a POSCO spokesman said. “The plan to sell three retail businesses is part of our ongoing restructuring effort. We will continue to sell or merge our affiliates.’’

POSCO has taken over Daewoo International and other firms over the past few years, pushing the number of its subsidiaries to over 70. It has also spent billions of dollars to acquire coal and iron ore mines overseas to solidify its global commodity supply chain.

As a result, its cash reserves have plummeted to a record-low level, making it difficult for POSCO to deal with the ongoing steel industry downturn.

In the third quarter of this year, POSCO’s revenue fell 10.6 percent to 8.9 trillion won from the same period in 2011, with its operating profit plunging 24.6 percent to 819 trillion won over the one-year period.

Standard & Poor’s and Moody’s, two of the three major global credit ratings agencies, have cut POSCO’s long-term corporate debt rating to BBB+ from A-, citing its weakening financial health. Fitch is widely expected to lower the firm’s credit worthiness in the near future.

SK Group, the country’s third largest conglomerate, is overhauling how it is managed.

Currently its chairman, Chey Tae-won, wields absolute managerial control over all business units. However, the conglomerate plans to give greater leeway to CEOs of each subsidiary as group holding firm SK Corp. and Chey will largely focus on global business strategies.

SK said Tuesday that it will downsize the managerial role of SK Corp. in its subsidiaries and instead allow each affiliate to make independent managerial decisions to more effectively cope with the changing market environment and minimize risks.

“Chairman Chey and CEOs of all SK units met Monday and decided to decentralize the group’s management so that each entity will be primarily responsible for its own decision making,’’ an SK Group spokeswoman said. “This change will help us make timely decisions and more actively tide us over amid ongoing hardships.’’

Lotte Group, the country’s fifth largest chaebol, has and will merge its subsidiaries to create larger entities as part of efforts to deal with the ongoing economic downturn.

Its flagship retail unit Lotte Shopping plans to merge with Lotte Midopa which operates a department store in Nowon, northern Seoul, in a bid to integrate the department store business. Lotte Shopping plans to take several of the group’s other retailers under its wing next year.

Lotte Samkang, one of Korea’s largest food firms, is set to absorb maker of processed meat products Lotte Ham, in January. Over the past few years, it took over dairy producer Pasteur and bread maker Wellga.

Homan Petrochemical, Lotte’s chemical unit, has acquired the group’s smaller chemical firms over the past few years and plans to merge with KP Chemical.

STX Group has decided to merge STX Metal with STX Heavy Industries. It also plans to dispose of stakes in some subsidiaries to foreign companies to secure cash.

CJ Group plans to integrate CJ GLS and CJ Korea Express to boost operational efficiency and cut management costs. CJ Group has also disposed of three local logistics centers and an information technology center in Songdo, raising 150 billion won.

Home plus, one of the country’s three largest discount store chains, has sold four outlets in Seoul to cope with slumping sales and worsening cash flow.

In August, Hyundai Group sold its headquarters building in Seoul to an asset management firm for 226.2 billion won. <The Korea Times/Lee Hyo-sik>