POSCO mulls holding company structure to raise enterprise value

South Korea's largest steelmaker POSCO is considering splitting up the company to launch an investment holding firm as part of efforts to enhance its enterprise value.

Following the separation, the steelmaking unit and other current affiliates will be placed under the new holding company as subsidiaries, according to steel industry sources on Wednesday.

POSCO, the country’s sixth-largest company in terms of assets, will finalize its restructuring plan at a board meeting on Dec. 10 and put it to a vote at an extraordinary shareholders’ meeting in January, the sources said.

The restructuring is aimed at enhancing the company’s corporate value, which it judges as “seriously undervalued” by the market because of the investor perception that POSCO is a typical smokestack industry company.

A POSCO official said the company is considering various ways of restructuring to pursue new growth drivers, but “nothing has been decided yet.”

Currently, POSCO, the steelmaker, virtually controls its affiliates with major stakes in them. The company holds a 61.3% stake in POSCO Chemical Co., 74.7% of POSCO Energy Co., 52.8% of POSCO Engineering & Construction Co., and 62.9% of POSCO International Co.

Shares of POSCO surged on the proposed reorganization plan. The stock finished up 6.1%, its biggest percentage gain in one-and-a-half years, at 277,000 won on Wednesday.

WEAK SHARE PRICE DESPITE STRONG EARNINGS

Under the plan, the new holding company will also work as the group’s main investment vehicle, looking for M&A targets and exploring new business opportunities particularly in rechargeable battery materials and hydrogen projects, the sources said.

POSCO Chairman Choi Jeog-woo has been displeased with its weak share performance despite its decent earnings and diverse business portfolio, industry watchers said.

The company said in October its third-quarter operating profit soared to a record 3.11 trillion won ($2.6 billion) on a consolidated basis, a nearly fivefold increase from 670 billion won a year earlier.

For the first nine months of the year, its consolidated operating profit, including that of its affiliates, stood at an all-time high of 6.87 trillion won.

However, its current stock price is down 33% from a May high of 413,500 won.

POSCO, the world’s fifth-largest steelmaker by output, has yet to reach the country’s top 10 companies in terms of enterprise value. Its market capitalization is slightly above 20 trillion won.

HURDLES TO RESTRUCTURING

Sources said the company will likely split up through a spin-off separation, in which POSCO distributes shares of new companies to its existing shareholders on a pro-rata basis.

Industry officials said the company’s separation plan could face objections from its major shareholders such as the National Pension Service (NPS), which holds a 9.75% stake in POSCO, and the world’s largest asset manager BlackRock (slightly more than 5%).

The NPS cast votes against similar moves in the past. It objected when LG Chem Ltd. said it wanted to create the separate battery firm LG Energy Solution and SK Telecom Co. said it would divide itself into a telecom unit and a non-telecom investment company.
 
POSCO’s management control over its affiliates could also be threatened as it should meet the requirements stipulated by a new fair trade law that a holding company must own at least 30% of listed subsidiaries.

POSCO’s treasury shares are about 13% of its total outstanding stocks.

Write to Jung-hwan Hwang and Jun-Ho Cha at jung@hankyung.com
In-Soo Nam edited this article.