S.Korea steel giant POSCO weighs how to exit Myanmar military-backed venture -sources

Posco International

05/04/2021 09:14

* Reviewing whether to sell JV stake or buy out partner MEHL
-sources
    * Review comes amid investor, activist pressure to cut ties
    * A number of international firms already scrapped Myanmar
JVs
    * Separate, lucrative POSCO-Myanmar gas tie-up clouds issue
    * POSCO C&C hasn't paid dividend to MEHL since 2017 Rohingya
crisis

    By Cynthia Kim
    SEOUL, April 5 (Reuters) - Giant South Korea steelmaker
POSCO has begun reviewing how it might end a joint venture with
a firm controlled by the military in Myanmar in the wake of the
coup there in February, two people with first-hand knowledge of
the matter told Reuters.
    As Myanmar's army rulers continue a deadly crackdown on
protest, with hundreds killed, the people said the Korean
parent's POSCO C&C  058430.KS  arm is looking into either
selling its 70% stake in the venture with Myanmar Economic
Holdings Ltd (MEHL), or buying out its partner's stake. It
wasn't immediately clear how much the 30% holding might be
worth.  urn:newsml:reuters.com:*:nL4N2LV050 
    The internal discussions come amid growing scrutiny from
shareholders and rights activists on international businesses
still operating partnerships in Myanmar. Firms from Australia's
Woodside Petroleum  WPL.AX  and Japan drinks giant Kirin
Holdings  2503.T  are among those who have already pulled the
plug.  urn:newsml:reuters.com:*:nL1N2KB04F urn:newsml:reuters.com:*:nL4N2KX045
    MEHL is among Myanmar military entities recently sanctioned
by the United States and Britain. POSCO C&C has repeatedly said
it hasn't paid dividends to MEHL since the 2017 Rohingya crisis
drew international criticism of Myanmar's military.  urn:newsml:reuters.com:*:nL1N2LN1LF
    But the people with knowledge of the matter say POSCO is
wary of an abrupt steel exit because it could potentially 
jeopardise hundreds of millions of dollars earned from more
lucrative gas projects operated jointly with another Myanmar
state firm by an affiliate, Posco International  047050.KS . 
   "We won't want to run the business like we do now, and we are
reviewing restructuring our Myanmar operation," one of the two
sources with knowledge of the discussions told Reuters. The
people declined to be identified citing internal company policy.
    "This doesn't mean we are rushing to make any decision, but
two options that could potentially take place include selling
our stake or buying out their (MEHL's) stake."
    POSCO C&C previously said its business would not be hit by
sanctions, and that it will only take action if it finds that
MEHL is directly involved in the coup.
    MEHL didn't respond to Reuters' request for comment.
    
    'BIG BUCKS'
    The profits POSCO makes from the Myanmar steel business -
about 2 billion won ($1.77 million) last year - are dwarfed by
earnings from Myanmar gas projects.
    About two thirds of the operating profit at Posco
International came from latter last year - around 300 billion
won ($265.5 million) - in partnership with local state energy
firm Myanmar Oil and Gas Enterprise (MOGE).
    "Relatively speaking, (the) steel sheets business isn't
making big bucks. And its ownership structure is much simpler
than some of POSCO's other businesses in Myanmar," the second
source at the company said.
    "But if we exit, it would be important to say 'bye' on good
terms."
    Total  TOTF.PA  of France and U.S.-based Chevron  CVX.N 
have also worked for decades with MOGE, which is yet to come
under sanctions, although the UN's human rights investigator
last month called for coordinated sanctions.  urn:newsml:reuters.com:*:nL1N2LW0FB
    Exiting steel rather than gas would also be simpler due to a
more complex ownership structure in the latter venture, the
sources said. 
    While Posco International controls the gas projects via its
51% stake, India's Oil and Natural Gas Corp (ONGC)  ONGC.NS  and
GAIL  GAIL.NS  own 17% and 8.5% stakes respectively. 
    
    PRESSURE BUILDING
    International pressure against the military and companies
that have ties with it has steadily risen since February, with
death toll close to 550 in the two months since the generals
overthrew Aung San Suu Kyi's elected government.  urn:newsml:reuters.com:*:nL4N2LV1F3
    Shin Mee-jee at South Korea's People's Solidarity for
Participatory Democracy was among those at pressure groups who
said the country's huge national pension fund - the National
Pension Service (NPS) - should exert pressure on POSCO to cut
ties with Myanmar's military. 
    NPS is the largest shareholder in POSCO, with an 11.1% stake
worth $2.42 billion, and the world's third-biggest pension fund
overall with nearly $1 trillion in assets. 
    "What a nonsense, to see our taxpayers' money being
channeled to kill the people of Myanmar through the (pension)
... The government also needs to be more responsible about where
the pension fund's money is going," Shin said.
    An NPS spokesperson declined to comment when asked if the
fund or its governing committee would take action to possibly
exclude POSCO from its fund.
    Meanwhile European investors are taking a greater interest
in POSCO's plans for Myanmar.
    Sweden's public pension fund, which owns POSCO shares, told
Reuters it has quizzed the company over its Myanmar investments
as it is concerned about human rights issues in the country.
    Meanwhile Nordic investor Nordea told the Swedish arm of the
Fair Finance network, initiated by Oxfam, that it had put POSCO
"in quarantine until further notice" regarding its Myanmar
plans.               
    
($1 = 1,128.6400 won)

 (Reporting by Cynthia Kim; Additional reporting by Heekyong
Yang; Editing by Jack Kim and Kenneth Maxwell)
 ((Cynthia.Kim@thomsonreuters.com; 822 3704 5655; Reuters
Messaging: cynthia.kim.thomsonreuters.com@reuters.net))