Former Posco Group Chairman Chung Joon-yang allegedly invested some trillions of won in questionable mergers and acquisitions during his term; Posco probe shifts to its subcontractors

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Trillions of won spent on Posco M&As

Mar 19,2015

Former Posco Group Chairman Chung Joon-yang allegedly invested some trillions of won in questionable mergers and acquisitions during his term, according to data from a website specializing in corporate statistics. The 67-year-old has been recognized by prosecutors as the driving force behind alleged tax evasions and a multitude of suspicious mergers and acquisitions orchestrated by the nation’s No. 1 steelmaker that resulted in a massive financial blow. The figures this week come at a time when prosecutors have expanded their investigation into the alleged slush fund amassed by Posco Engineering and Construction (E&C) worth billions of won. Chung has also been pinpointed as a key figure in the creation of that illegal account.
According to Chaebul.com, a website that follows the nation’s major conglomerates, when Chung led the group from February 2009 to March 2014, Posco invested 7.66 trillion won ($6.8 billion) across 13 ventures, including mergers and acquisitions worth over 30 billion won each and investments on companies’ shares worth 100 billion won each.
“It’s hard to say whether the numbers are right or wrong,” a spokesman for Posco told the Korea JoongAng Daily. “It looks like they came from people in the investment banks.”
After Chung became chairman in 2009, Posco first acquired an 85 percent stake of Daehan Steel for 60 billion won. Later that year, it also bought a 3.68 percent stake in KB Financial Group for 250 billion won.
The next year, Posco opened its wallet even wider, completing its biggest-ever M&A by acquiring a 60.31 percent stake of the trading company Daewoo International for 3.37 trillion won. It then purchased a 40.38 percent stake in Sungjin Geotec, an industrial equipment manufacturer, to merge it with its affiliate Posco Plantec.
Investments continued overseas. In 2010, Posco acquired a 49 percent stake of Australian iron ore maker American Metals & Coal International (AMCI), the U.S.-based parent company of AMCI Pty. Ltd. for 194.7 billion won, and 15 percent stake of Roy Hill Holdings for 1.779 trillion won. It then acquired a 66.39 percent stake of Thainox Stainless Public in Thailand for 395 billion won and spent 826.7 billion won to buy a 70 percent stake of Indonesian steelmaker PT. Krakatau.
Before Chung became the chairman, Posco had just 30 affiliates, though it added 41 more by 2011, leading some insiders to worry about such an aggressive push. Among its affiliates, 18 were struggling financially from 2009 to 2012, according to the industry.
Sungjin Geotec was one of the most controversial cases that Posco operated. According to an audit report filed by its accounting firm in 2008 and 2009, the company was questioned over its sustainability.
The value for Sungjin Geotec was only 8,300 won per share, while Posco paid 16,330 won per share in 2010.
At the time, there was speculation that one of the key aides of former President Lee Myung-bak had influenced the steelmaker. Jeon Jeong-do, the major shareholder and the chairman of Sungjin, was known to be a close associated of the former president’s older brother, Lee Sang-deuk.
BY KWON SANG-SOO [kwon.sangsoo@joongang.co.kr]

 

Posco probe shifts to its subcontractors

Heungwoo Industrial eyed as collaborator in slush fund’s creation

Mar 19,2015

Authorities investigating an alleged 10 billion won ($8.9 million) slush fund accumulated by Posco Engineering and Construction are now looking into its subcontractors, which are believed to have offered black money as rebates during a construction project.

The Seoul Central District Prosecutors’ Office raided the offices of Posco E&C’s three subcontractors, including Heungwoo Industrial, on Tuesday and is now tracing the flow of their bank funds according to confiscated accounting data.

Heungwoo Industrial expanded its business in Vietnam by establishing Heungwoo Vian in July 2009 and Yongha Vina in January 2010, which mainly provided materials for construction projects.

The prosecution believes Posco E&C, Posco Group’s engineering and construction arm, received a rebate of about 4 billion won – nearly half the 10.7 billion won in Posco’s slush fund – from Heungwoo’s two local companies during a highway construction project in Vietnam from 2009 to 2012.

Heungwoo Industrial, a Busan-based construction company, expanded its business to Vietnam in September 2009 and is believed to have contributed to the slush fund, particularly given its long-term cooperation with Posco E&C.

Posco E&C is an important client for Heungwoo, and orders from the construction arm account for about 16 percent of Heungwoo’s annual sales of 180 billion won.

Heungwoo Industrial became a subcontractor for the predecessor of what is now Posco E&C in 2001 when it won a bid to build a port in Yeongil Bay in Pohang, North Gyeongsang.

Since then, it also obtained large-scale orders from Posco E&C, including construction projects in Sejong City that added up to 479 billion won. It was also responsible for helping to refurbish parts of the Nakdong River in the four-rivers restoration project, a project worth 33 billion won.

Investigators have also focused their attention on possible connections between Heungwoo Industrial and the Lee Myung-bak administration. Additionally, Heungwoo’s CEO is known to have numerous social connections in North and South Gyeongsang.

The prosecution has not ruled out the possibility that its CEO, surnamed Lee, may have been involved in creating Posco’s alleged slush fund.

He is expected to be summoned for questioning after prosecutors finish analyzing confiscated data from Heungwoo.

A Pohang-based construction company was also raided on Tuesday over suspicions that it had corrupt connections to Posco Group’s former chairman Chung Joon-yang, who headed the conglomerate between 2008 and 2014.

During Chung’s term, the Pohang construction company’s annual sales doubled from 50 billion won to 100 billion won as it obtained a multitude of contracts from the corporation. Prosecutors believe the company’s branches in Indonesia and Vietnam also contributed to Posco’s secret fund.

The president of the Pohang-based company is also suspected to be close to former President Lee Myung-bak’s close aides.

BY KIM BONG-MOON [kim.bongmoon@joongang.co.kr]

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