Newspaper article The Christian Science Monitor

Korea Considers Selling Its Huge Steel Company but the Potential Buyers Are Already Too Big

Newspaper article The Christian Science Monitor

Korea Considers Selling Its Huge Steel Company but the Potential Buyers Are Already Too Big

Article excerpt

As South Korea's economy transforms, with central government control slowly yielding to free competition and open markets, one state enterprise most attractive to buyers may prove to be the hardest one for the government to privatize.

Pohang Iron and Steel Company (Posco) is highly profitable and cost-efficient. Expansion plans call for it to overtake Japan's Nippon Steel in 1999 as the world's largest steelmaker, with a projected capacity of 28 million tons.

The problem is that it's too important to the economy, and the government would like to curb the power of the only companies with enough money to buy it: the chaebol.

Such conglomerate companies already make nearly everything under the sun. Sales of the biggest chaebol, like Samsung or Hyundai, eclipse the central government's annual budget. Allowing them to expand their scope would make them more unwieldy, and would stir up a public suspicious of concentrations of wealth.

Posco is a particularly big prize. "Whoever owns Posco will have one of the largest economic empires in Korea", says Kim Jong Sok, an economist at Hongik University. As South Korea's only steelmaker, Posco has a big influence over many manufacturing industries. It would be quickly eaten by chaebol eager for vertical integration and expansion.

So although Posco has some inefficiency problems common to state companies, according to analysts Posco may be retained by the government for years. Two other state-run giants - Korea Telecom and Korea Electric Power Corp. - will have similar problems being sold off. The alternative of offering shares to the public would take a long time and the sheer volume would depress the stock market, analysts say.

Until recently when international steel prices fell, Posco has been a useful tool for the government. For years the company kept domestic steel prices below international levels, enhancing the competitiveness of Korean cars, ships and electronics - a practice US trade officials often said was unfair. Officials in the Ministry of Trade Industry and Energy don't want to relinquish this and other powers, say observers. …

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