South Korean Steel Firm Set to Buy U.S., Canada Mills
In a move heralding an emerging South Korean role in overseas investment, Sammi Special Steel Corp. is about to become the first Korean firm to buy American factories.
Moreover, $180 million of the $220-million deal will be financed by an international syndicate of banks led by a South Korean bank, a sign of South Korea’s growing financial strength. South Korea, once deeply in debt, will enter the ranks of net creditors this year, Kim Kun, a Bank of Korea governor, said in a recent interview.
The governments of Canada, the United States and South Korea must authorize Sammi’s purchase, but approval is expected “in the very near future,” according to Jin Byung Hwa, overseas investment director at the Ministry of Finance.
Sammi, South Korea’s largest specialty steel firm, will purchase three specialty steel-producing divisions of Rio Algom of Toronto, a mining and resource exploration firm that is a subsidiary of the London-based RTZ Corp. The divisions are Atlas Stainless Steel, situated in Tracy, Quebec; Atlas Speciality Steel, in Welland, Ontario, and AL Tech Specialty Steel Corp. of Dunkirk, N.Y.
The Dunkirk division operates specialty steel mills in both Dunkirk and Watervliet, N.Y.
Together the four plants produce about 500,000 tons of specialty steel a year. Last year, they registered an operating profit of $63.8 million on sales of $582.4 million.
South Korea’s largest integrated steelmaker, Pohang Steel Corp., has invested in a joint-venture steel mill with USX, and such electronics giants as Samsung and Gold Star have built manufacturing plants in the United States. But Sammi’s purchase represents the first takeover by a Korean firm of existing American plants.
Four years ago South Korea’s foreign debt peaked at $47 billion. But with the emergence of trade surpluses, rising wages and the appreciation of South Korean currency, South Korean manufacturers have begun investing overseas. Net overseas assets are expected to surpass claims against the country by the end of this year, making South Korea a net creditor, and the government has been loosening controls on foreign investment and Korean banks’ overseas activities.
‘Rare’ Korean-Led Loan
Jin, the Finance Ministry official, said a Korean-led loan for an overseas manufacturing purchase “is rare.” Korea First Bank has arranged the loan, in which two Korean state-run banks and eight foreign banks will participate.
At the end of April, total Korean overseas investment amounted to $1.1 billion, with $362 million of it in manufacturing projects, Jin said. In the United States, investment had reached $358 million, with $179 million of it in manufacturing.
In contrast, cumulative foreign investment in South Korea amounted to about $4 billion at the end of last year.
Delegations from Europe, Southeast Asia and the United States are making increasingly frequent visits to Seoul seeking private Korean investment.
To date, overseas investment has been led by three of South Korea’s largest electronics firms, Gold Star, Samsung and Daewoo. By the end of this year, the three firms will be operating 21 plants overseas. Footwear and textile firms are also getting into operations abroad.
Hwang Cheol Kyu, a Sammi spokesman, said the company will retain all the employees at all three of the Rio Algom divisions it is buying. It will send Korean representatives to each, but has not yet decided how many.
Although Sammi plans to complete a new plant, expanding its annual capacity to 1 million tons from 385,000 tons, the company will still lack the ability to produce hot coil specialty steel and plans to import that product from its new North American plants, Hwang said. Currently, 70% of its imports of 180,000 tons a year comes from Japan.
The acquisition will give South Korea a new assured source of supply of hot coil steel, Jin said. Hot coil is processed into stainless sheet for use in automobile manufacturing.
“Sammi has a history of only 20 years in specialty steel,” Hwang said. “AL Tech has a history of more than 100 years, and our acquisition of it will enhance our technology.”
The purchase will bring Sammi’s total production capacity to 1.5 million tons, making it one of the largest specialty steel firms in the world. The purchase will ensure that South Korea, for the first time, becomes self-sufficient in specialty steel other than hot coil.
