26-09-2016

No Artificial Plan for Merger, Abolition of Shipbuilding, Steel and Petrochemical Companies

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The government mapped out a restructuring plan to give financial and tax support to self-restructuring companies without the artificial merger and abolition of shipbuilding, steel and petrochemical companies. With an eye towards inducing R&D and M&A, the government is planning to make good use of the Korea Development Bank’s financial power.

“Although the date is subject to change, we will announce a plan to reinforce their industrial competitiveness around September 30,” said a high-ranking government official. “We focused on inducing facility reduction and M&A for self-regulating market reorganization and giving R&D support to create more industrial added value.”

The government will announce an additional plan to enhance the competitiveness of the shipping industry of which restructuring was considerably implemented next month.

The government and industries asked McKinsey (shipbuilding), the Boston Consulting Group (steel) and Bain & Company (petrochemicals) to analyze mid- to long-term strategies. This plan was made based on the results of consulting on the industries at home and abroad. Its direction was set not to choose artificial restructuring.

The government is planning to let the Korea Development Bank utilize a business reorganization fund amounting to 2.5 trillion won (US$2.23 billion) raised for the Corporate Vitality Improvement Special Act to help companies to restructure themselves on their own. That is to say, if companies reduce facilities in their poorly performing business sectors and implement self-regulating business reorganization, the government will loan them for facility expansion, R&D and M&A at a low interest rate.

The government gave an outline of a plan to elevate the competitiveness of the three industries as well. It is forecast that the government will lead the steel industry to cut down on facilities to produce steel plates whose demand has plunged due to a slump in the shipbuilding industry. Instead, the government will give financial support to the steel industry so that steel companies will be able to focus on the R&D of high value added steel products such as titanium whose demand is on the rise not only at industrial sites but also in the bio health product market.

On top of that, the government will give support to the hydrogen reduction iron and steel making method which can drastically slash CO2 emissions during the steel production process and the R&D of steel replacement aluminum.

With regard to the petrochemical industry, the government decided to induce the retrenchment of facilities to produce terephthalic acid (TPA) and polystyrene (PS) hit hard by serious gluts. Besides, the government will give financial aid to petrochemical companies to lead them to develop products to respond to environmental regulations such as high value added products, for example, engineering plastics, eco-friendly dying materials and advanced rubber materials.

Korea’s three biggest shipbuilders (Hyundai Heavy Industries, Samsung Heavy Industries, Daewoo Shipbuilding & Marine Engineering) will be maintained according to the government plan. This is because the government judged that the Korean shipbuilding industry’s competiveness was still world class although the three shipbuilders incurred trillions of Korean won in loss.

But the government decided to further strengthen the overall base for the shipbuilding industry by making them cut production facilities and nurturing small and mid-sized shipbuilding material firms since the global economic slump prompted a decrease in new ship orders.

Source: BusinessKorea

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