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POSCO E&C Accelerates Asset Sales, Disposes of Chungju Technical Research Institute for 14.9 Billion Won

[비즈한국] It has been confirmed through BizHankook’s reporting that POSCO E&C recently sold its technical research institute in Chungju, North Chungcheong Province, to the Chungju city government. In August, POSCO E&C previously sold its stake in its Vietnam subsidiary as part of the POSCO Group's restructuring; this latest sale is also understood to be an extension of the group’s effort to divest non-core assets. POSCO E&C is currently facing deteriorating operating performance and financial health, while also grappling with the risk of administrative sanctions following a series of fatal accidents at its construction sites.

According to industry sources, POSCO E&C sold the Chungju Technical Research Institute building and its land to the Chungju city government on the 22nd of last month. The total sale price was 14.9 billion won. The building consists of two floors above ground (total floor area of 2,011㎡), and the land spans 87,481㎡; their respective book values were approximately 13 billion won and 3 billion won. POSCO E&C acquired the land in 2006 by investing in 'Chungju Enterprise City,' the company dedicated to the construction of the enterprise city in Chungju, and built the research institute in December 2014. Since then, it has been used as a space to test and verify new construction technologies and materials, such as floor noise reduction technology.

This real estate sale is interpreted as part of the POSCO Group's restructuring. Since last year, POSCO Holdings005490 has been implementing a plan to sell 126 projects by 2026, including 55 low-profit business units and 71 non-core assets. As of the first half of this year, 56 projects (45%) have been successfully sold, securing 1 trillion won in cash. As part of the POSCO Group's restructuring, POSCO E&C sold its stake in its Vietnam subsidiary last August. The acquisition price at that time was reportedly around 17 billion won.

A POSCO E&C official stated, “The Chungju Technical Research Institute had a low utilization rate due to its poor accessibility from our research and development organization in Songdo, Incheon. We decided to sell it as part of the group’s structural reorganization.” The official added, “The Chungju institute was used as a space to test technologies researched and developed by the company, and we plan to conduct these roles at partner companies or separate construction sites moving forward.” A Chungju city official added, “We plan to use the purchased land for public purposes, such as facilities for children, and the final usage plan will be determined through research services.”

The cash generated from the asset sale is expected to be used to improve the company's financial structure. According to the semi-annual report, as of June this year, POSCO E&C’s debt-to-equity ratio on a consolidated basis was 136%, an increase of 18 percentage points compared to the end of last year. The company's total debt reached 4.6065 trillion won, an increase of 457.5 billion won during the same period. Fortunately, the debt-to-equity ratio remains below 200%, a level considered to indicate sound financial health in the construction industry.

The problem lies in the deteriorating operating performance. In the first half of this year, POSCO E&C’s cumulative consolidated revenue was 3.68 trillion won, a 27% decrease compared to the same period last year. Operating profit, which was 78.1 billion won in the first half of last year, turned into a deficit of 66.9 billion won in the first half of this year. POSCO E&C’s annual operating profit has declined from 308.6 billion won in 2022 to 201.4 billion won in 2023, and 61.8 billion won last year. Korea Investment & Securities estimated POSCO E&C’s operating loss for the third quarter of this year at approximately 290 billion won, more than triple the 90.8 billion won loss recorded in the previous quarter.

Concerns over performance and finances have intensified due to a series of fatal accidents. This year, four fatal accidents occurred at construction sites managed by POSCO E&C, resulting in four deaths. These include a fall accident at an apartment construction site in Gimhae, South Gyeongsang Province, in January; a collapse at the Shin-Ansan Line construction site in Gwangmyeong, Gyeonggi Province, and a fall at a mixed-use residential building construction site in Daegu in April; and a drilling machine entrapment accident at a highway construction site in Uiryeong, South Gyeongsang Province, in July. It is reported that the government is currently reviewing measures against POSCO E&C, including business suspension, restrictions on public bidding, punitive damages, and even the revocation of its construction license.