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| Doosan Engineering & Construction

Doosan E&C Secures Stable Financial Structure through Massive Capital Injection

- Secures US$ 921 million in liquid assets alone, reducing potential risks by preemptively setting aside allowances for losses
- Transforms its business structure befitting a company specializing in global plant facilities and services; targets US$ 5.5 billion in sales by 2020


Doosan E&C (CEO Jong Il Choi) announced on February 4 a plan to improve its financial structure by adding assets amounted to US$ 921 million, including capital increase worth US$ 414 million and sale of its assets. Through the drastic improvement of its financial structure, Doosan E&C expects to release all financial burdens -- a problem that has been raised due to recession in the real estate market -- and secure a stable foundation for business.

Measures to improve Doosan E&C’s financial structure include mobilization of US$ 1.03 billion -- US$ 414 million through capital increase, capital injection in kind worth US$ 524 million (including cash assets in possession) by Doosan Heavy Industries & Construction’s HRSG operation, and sale of assets worth US$ 137 million. Cash amounting to US$ 921 million will be injected through these measures: US$ 414 million through capital increase, US$ 367 million in cash assets in the HRSG business, and US$ 137 million from the sale of assets in its possession.

* HRSG (Heat Recovery Steam Generator)
- Main equipment for combined cycle thermal power plant and facility that generates electricity by reusing the high temperature gas emitted from a gas turbine.
Doosan controlling an average of 15 percent of the global HRSG market (ranking second) for the period 2007 ~ 2011.
- Doosan E&C expects the HRSG business to generate synergistic effects with Mecatec BG’s plant facility business.

Doosan E&C plans to reshuffle its construction-centered business structure completely into one focused on plant facilities and service, based on the newly added HRSG business along with the existing Mecatec business.

Doosan E&C and its main stakeholder, Doosan Heavy Industries & Construction, held a board meeting on that day and approved these measures to improve the former’s financial structure. In a bid to exercise management of accountability, Doosan Heavy Industries & Construction as Doosan E&C’s majority stakeholder will invest US$ 280 million through capital increase and transfer the HRSG business worth US$ 525 million via capital injection in kind to Doosan E&C.

Prior to the implementation of these measures to improve its financial structure, Doosan E&C preemptively set aside allowances for losses worth US$ 689 million as well by adequately reflecting the losses resulting from the unsold apartment units and delays in new home owners’ actual move-ins, including potential losses in the future. The provisioning of loss allowances reflects the worst-ever housing market situation, and such will completely address potential losses from the housing business.

With the latest expansion of capital, Doosan E&C is expected to see its owner’s capital increase from US$ 556 million in late 2012 (situation after the allocation of loss allowances) to US$ 1.59 billion by the end of this year; its net debt will also decrease sharply from US$ 1.58 billion to US$ 736 million. Likewise, Doosan E&C will secure a stable financial structure since its debt ratio will also drop from 546 percent to 148 percent.

In the wake of the improvement of its financial structure and addition of the HRSG business in its business portfolio, Doosan E&C plans to nurture its plant facility business intensively along with the existing chemical plant business “Mecatech BG.” At the same time, it will focus on the consolidation of business to boost profitability in construction operations.

Doosan E&C plans to develop into a world-class plant facility and service company with US$ 5.5 million in annual sales by 2020 by accelerating the marine plant facility business, making inroads into new businesses such as supplementary power plant facility sector, and enhancing operational efficiency.

It is unlikely thatDoosan Heavy Industries & Construction faces any financial burden as a result of these measures. If Doosan E&C restores its normal operation through the expansion of capital, such will eventually increase the value of Doosan Heavy Industries & Construction’s stake in the subsidiary. Moreover, since Doosan Heavy Industries & Construction securely holds internal liquidity of about US$ 2.11 billion in Korea and overseas, the Company is confident about its cash flow.