Posco-India takes Rs 656 crore impairment loss after Odisha exit

South Korean steelmaker Posco has taken a Rs 658.79 crore (109,248 million Korean won) impairment loss, or permanent reduction, in the value of securities of Posco-India Pvt Ltd, a regulatory filing shows.

In March last year, Posco-India had requested the Odisha government to take back its 2,700-acre land provided at Paradip in Jagatsingpur district for setting up a 12-million-tonne steel project. Consequently, the state government sent a letter toPosco-India informing the land allotted to it has been cancelled. The 2005 project was billed as India's biggest foreign direct investment at that time, but it faced several delays due to a regulatory maze and protests.

In 2005, Posco-India was incorporated to promote investment in steel, considering the high growth potential and rise of steel demand in India. In 2011, its role was expanded to act as the regional headquarter, and in 2015, its nature and role have been further extended to represent Posco group affiliates in India.

In a notice to shareholders on the 50th ordinary general meeting to be held on March 9, Pohang-headquartered Posco said, "During year ended December 31, 2017, the company conducted the impairment test on securities of Posco M-Tech, Posco Family Strategy Fund, Suncheon Eco Trans Co Ltd and Posco-India Pvt Ltd due to signs of impairment such as continuous business loss. As a result of the impairment test, the company hasrecognised W2,793 million, W12,816 million, W47,600 million and W109,248 million of impairment losses on its securities due to its carrying amount that significantly exceeded its recoverable amount."

Impairment takes place when a firm sells or abandons a fixed asset which is no longer beneficial as the book value of the asset falls below the amount that can be recovered by selling it. Impairment normally occurs when there is a sudden and large decline in the fair value of an asset below its carrying amount, or the amount recorded on a company's balance-sheet.

A DNA Money query posted on the steel giant's website regarding the plans and outlook for itsIndian units went unanswered.

In 2016, Posco ascribed a book value of 184,815 million won to securities of Posco-India Pvt Ltd. By 2017-end, the book value was slashed to 75,567 million won. One South Korean won equals 0.060 Indian rupee. Hence, the 109,248 million won impairment loss translates into Rs 656.78 crore.

Posco has different subsidiaries in India. In steel manufacturing and sales, there is Posco-India Pvt Ltd, Posco-India Pune Processing Center Pvt Ltd, Posco India Chennai Steel Processing Centre Pvt Ltd, Posco TMC India Pvt Ltd. In trading business, thereis Posco Daewoo India Pvt Ltd. In civil engineering and construction, Posco has Posco Engineering and Construction India Pvt Ltd, and in steel logistics, there is Posco India Steel Distribution Center Pvt Ltd.

For the stabilisation of downstream steel investments, such as cold-rolled, galvanised and electrical steel production plants in Maharashtra, steel processing centres in Pune, Delhi, Chennai, etc, and as an internally reinforced Shared Service Center (SSC), Posco-India communicates and co-ordinates between Posco family companies in India and Posco headquarters in Korea, in parallel with promoting cooperation with domestic steelmakers.

During the year ended December 31, 2017, Posco Maharashtra Steel Pvt Ltd merged with Posco Electrical Steel India Pvt Ltd.

A STEELY BLOW

• In March 2017, Posco-India had requested the Odisha government to take back its 2,700 acre landfor setting up a 12-million-tonne steel project
   
• The 2005 project was billed as India's biggest foreign direct investment at that time, but it faced several delays due to a regulatory maze and protests