'Restructuring Model Student' Doosan Faces a Challenging Future

Mercury Injects 590 Billion KRW into Doosan Heavy Industries
42 Trillion KRW Debt Maturing Within the Year

Doosan Group's 80% Revenue from Heavy Industries
Slow Transition to Advanced Industrial Company
Cash Cow to Overcome Crisis Also Absent

[Image source=Yonhap News]

[Asia Economy Reporters Lim Jeong-su and Lee Ki-min] Doosan Group has overcome a critical hurdle with the support of the Export-Import Bank of Korea for Doosan Heavy Industries & Construction. However, there are still many challenges to overcome before the normalization of Doosan Group. Doubts about the feasibility of the self-rescue plan submitted to creditors persist, and even if urgent borrowing issues are resolved, concerns about the business structure and external environment remain both inside and outside the creditor group. Once regarded as a 'model student' in business restructuring, Doosan Group now finds itself hampered by 'restructuring,' raising fears about the group's survival.

On the afternoon of the 21st, the Export-Import Bank of Korea converted Doosan Heavy Industries & Construction's $500 million foreign currency public bond, maturing on the 27th, into a one-year won-denominated loan of 586.8 billion won at the expanded credit committee meeting. The bank had provided a payment guarantee when Doosan Heavy Industries & Construction issued foreign currency public bonds in April 2015.

Although Doosan Heavy Industries & Construction has extinguished the immediate fire, there is still a long way to go to achieve management normalization. As of the end of last year, Doosan Heavy Industries & Construction's separate basis borrowings amounted to 4.93 trillion won. Of this, 4.2 trillion won is due within the year. This includes 1.25 trillion won in corporate bonds, 1.1 trillion won in loans from policy banks, 780 billion won from commercial banks, 360 billion won from foreign banks, and 700 billion won in commercial paper (CP) and short-term bonds. Among these, bonds held by commercial banks are expected to be resolved through measures such as refraining from collection and extending repayment deadlines. Additionally, 500 billion won worth of convertible bonds (BW) expected to be called for early redemption must also be addressed. Furthermore, borrowings amounting to about 570 billion won are due in the first half of this year. Doosan Heavy Industries & Construction plans to cover these with internal cash assets and 1 trillion won in support from the Korea Development Bank and the Export-Import Bank of Korea, but certainty is lacking. The management crisis at Doosan Heavy Industries & Construction remains ongoing.

The crisis at Doosan Heavy Industries & Construction inevitably spills over to Doosan Group. This is because Doosan Group is primarily an infrastructure-focused group, with most of its sales coming from heavy industries and infrastructure sectors.

In the business community, there is an analysis that Doosan Group, which successfully transformed from a consumer goods group to an infrastructure group in the early 2000s, is now facing this crisis because it has failed to accelerate its transformation into advanced industries, the next stage.

Until now, Doosan Group has attracted attention in the business world for its bold business restructuring. Starting with consumer goods such as beer (OB Beer), cola (Doosan Beverage), and clothing (Doosan Corporation), Doosan Group transformed into an infrastructure group with the acquisition of Doosan Heavy Industries & Construction (then Korea Heavy Industries) in December 2000. The sales ratio between consumer goods and infrastructure business (IBS) changed from 67:33 in 1998 to 15:85 twelve years after acquiring Doosan Heavy Industries & Construction. Former Doosan Group Chairman Park Yong-man praised this transformation in April 2014 at Harvard Business School, calling Doosan Group "the oldest company in Korea that has transformed and grown the fastest."

The problem lies in the fact that while Doosan Group succeeded in its second transformation into an infrastructure company, it missed the timing for the third transformation into an advanced industry company. In fact, Doosan's current business structure is analyzed to be not much different from that of the 2010s. The heavy industries and infrastructure sectors account for nearly 80% of Doosan Group's total sales. Although the global trend toward coal phase-out and nuclear phase-out has spread over the past decade, Doosan Heavy Industries & Construction still has 60-70% of its business in coal-fired power plants and 15% in nuclear power plants. It is expected to take 2-3 years to commercialize gas turbines, considered an alternative, and order volumes are not expected to be sufficient. Although current Doosan Group Chairman Park Jeong-won emphasizes growth through digitalization, the restructuring of the business into advanced industries has yet to succeed.

In this situation, the crisis at Doosan Heavy Industries & Construction means that Doosan must sell off all businesses with decent performance or future value, such as Doosan's Motrol (hydraulic equipment) and industrial vehicle (forklift) divisions, Doosan Heavy Industries & Construction's desalination plant division 'WATER,' NeoTrans, the operator of the Shinbundang Line, and Doosan Mecatec, a manufacturer of industrial heating boilers and metal tanks. This is a painful point for Doosan.

A business community insider analyzed, "The painful mistake for Doosan is the absence of a proper cash cow to overcome the liquidity crisis, as it has yet to shift its core industries to new and advanced industries."

This content was produced with the assistance of AI translation services.