[비즈한국] There is continued buzz regarding the merger of DB Inc. and DB Metals013580. DB Inc. announced on March 24 that it would absorb and merge with DB Metals. DB Group Chairman Kim Nam-ho is a major shareholder holding a 24.34% stake in DB Metals. However, DB Metals has been recording annual losses and carries a high debt-to-equity ratio. A significant portion of DB Metals' debt is guaranteed by former DB Group Chairman Kim Jun-ki (Chairman Kim Nam-ho’s father). From the perspective of the Kim Nam-ho family, repaying the debt of DB Metals is a critical issue. Suspicions have arisen that the merger between DB Inc. and DB Metals is aimed at resolving the debt problems of DB Metals.
Burden on Parent Company DB HiTek000990
DB Inc. operates the Rainbow Hills Country Club (CC), while DB Metals manufactures ferroalloys. The absorption merger process of DB Metals into DB Inc. is scheduled to be completed on July 1. If DB Inc. assumes DB Metals' debt after the merger, it could become a burden on its parent company, DB HiTek. Given DB Inc.'s current financial situation, it is difficult for it to repay DB Metals' debt without support from DB HiTek. As of the end of last year, DB Metals’ total debt reached 193.8 billion KRW, while DB Inc.’s cash and cash equivalents were only 54.4 billion KRW. Last year, DB HiTek already injected 89 billion KRW into DB Inc. in the form of a paid-in capital increase.
For DB HiTek, proceeding with the merger will also dilute its stake in DB Inc. Currently, shareholders of DB Inc. are: △DB HiTek 81.76% △Chairman Kim Nam-ho 3.00%; and shareholders of DB Metals are: △DB HiTek 28.83% △Chairman Kim Nam-ho 24.34%. After the merger, the shareholders of DB Inc. will be: △DB HiTek 72.07% △Chairman Kim Nam-ho 6.91%.
At first glance, there seems to be little necessity for DB Inc. to absorb and merge with DB Metals, as DB Metals' recent performance has been poor. DB Metals' revenue dropped by 45.93% from 373.8 billion KRW in 2023 to 200.3 billion KRW in 2024. The company's profitability is also weak, recording operating losses of 55.3 billion KRW in 2023 and 12.6 billion KRW in 2024. As of the end of last year, DB Metals’ debt-to-equity ratio reached 1,088.49%.
For this reason, the merger is being evaluated as a loss for DB Inc. in many ways. Among DB HiTek's minority shareholders, there is growing concern not only because their stake in DB Inc. is being diluted, but also because of the potential for the company to support the repayment of DB Metals' debts. For these reasons, minority shareholders of DB HiTek are criticizing Chairman Kim Nam-ho. On online communities, comments such as, "How many companies have gone bankrupt because owners tried to protect their own assets?" have appeared.
What About the Real Estate Development in Donghae City?
Regarding the absorption merger, DB Inc. stated in a public filing, "DB Inc. is assessed as the most suitable partner to maximize the asset value of DB Metals and create business synergies," adding, "We expect the merged entity to increase corporate value through development projects on the sites as a comprehensive real estate company."
DB Metals, a specialist in ferroalloys, has a plant in Donghae City, Gangwon State. However, due to the recent downturn in the industry, it has reduced production processes at the Donghae plant, leaving parts of the site idle. DB Inc. plans to develop this idle land. According to DB Inc., the idle land area covers 692,357㎡ (approximately 209,438 pyeong), about half of which is available for development.
DB Inc. has not yet disclosed exactly how it will develop the idle land. The possibility of constructing cultural facilities or a resort is primarily being mentioned. The location is not bad, as it is near Donghae Station. However, the profitability of a resort cannot be guaranteed. According to the Korea Tourism Organization, the number of visitors to Donghae City was: △10,287,991 in 2020 △9,914,131 in 2021 △11,991,497 in 2022 △11,948,419 in 2023 △11,545,093 in 2024. The number of visitors has been declining since 2022. Given that 2020-2021 was during the COVID-19 pandemic, some say the increase in visitors in 2022 holds little significance. While there is a possibility of building residential housing such as apartments, the overall decline in local populations is a source of anxiety.
As DB Inc. has not revealed specific development plans, criticism from DB HiTek’s minority shareholders is intensifying. There are even suspicions that the company mentioned development just to appease the sentiment of minority shareholders, even though there are no actual, concrete plans. A DB Group official stated, "It means that we will review the utilization of the idle land held by DB Metals."