PKX Expands Globally, Raises Fund - Analyst Blog

POSCO (PKX) joined forces with SK Energy by signing a memorandum of understating to study the possibilities of developing and commercializing value-added chemical products from the industrial by-products of the two companies. Through this partnership, POSCO aims to achieve international expansion and business diversification.

The partnership will initially be focusing on the production of basic petrochemical products from crude light oil and coal tar and petroleum by-products. The next step will emphasize on producing high functionality engineering plastics and other high value-added products.

Quest for overseas expansion also led POSCO to open its first African office in Cairo, Egypt. The region which is rich in natural gas, petroleum, coal and nickel, is expected to grow strongly in the years to come.

POSCO remains committed to working for facility additions and upgrades for capacity expansion. Recently, the company launched its new automotive steel-processing center, POSCO Turkey Nilufer Processing Center (POSCO-TNPC), in the city of Nilufer, Brusa Province.

POSCO-TNPC will primarily cater to satisfy the demand for high-quality automotive steel products of the global automakers and will also expand its sales network to household steel products.

The company is all set to invest roughly KRW 10.4 trillion in fiscal year 2010, with approximately 4.9 trillion allocated for domestic steel, 1.5 trillion for overseas investments and 4.0 trillion for new growth opportunities.

To fund its global growth strategies (building overseas steel mills and mine development) and finance increased material costs, POSCO issued $700 million worth 10-year global bonds priced at 99.557%.

The bonds carry a coupon rate of 4.25% to be paid semi-annually. The first payment falls due on April 28, 2011. Yield to maturity is expected to be 4.305%, up 1.79% from the U.S. 10-year Treasury notes. Total funds received amounted to $3.8 billion, reflecting 5.4 times of the original issue amount.

The largest fully integrated steel producer in Korea and one of the premier steel producers in the world, POSCO faces tough competition from Arcelor Mittal (MT) and privately-held Hyundai Steel Company.

We currently maintain a Neutral recommendation on the stock.