Concerns are rising that Korea is downgrading to a minor player in the global energy M&A market as the government has yet to develop a roadmap for the nation’s overseas energy development.
According to recent data by the Korea Export-Import Bank, the nation has failed to bear fruit in the global oil and gas M&A markets in the first half of this year. Not only the top two state-run energy giants ― Korea National Oil Corp. and Korea Gas Corp. ― but also leading overseas energy explorers in the private sector, including SK Innovation and Daewoo International, stopped short of making any overseas buyouts or stake acquisition deals in the global energy sector during that period, the data showed.
On the contrary to Korea, China and other Asian countries made massive investments in securing overseas energy assets. In particular, China swept the global energy M&A deals, investing $8.6 billion in the global gas and oil M&A markets for the first half of this year, which amounts to 41 percent of the total capital inflow into the markets.
Japan is stabilizing its foothold in the global energy M&A market, backed by the government. Early this year, the Japanese government gave the go ahead to state-owned Japan Oil, Gas and Metals National Corp. to spend about $1 billion on global energy M&A activities throughout the year.
Both KNOC and KOGAS are facing growing pressure to restructure their money-losing overseas projects due to mounting losses from “reckless” investments without tight evaluation of risk factors. Under the “overseas energy development initiative” pushed by the previous government, the two state-run corporations led overseas energy M&A deals for the past five years.
According to the report by the National Assembly Budget Office, released on Thursday, losses from overseas investments made by KNOC and KOGAS between 2008 and 2012 amounted to $1.96 billion. The loss deteriorated financial soundness of the two energy giants. In 2012, the debt-to-equity ratio of KNOC and KOGAS surged 167.5 percent and 385.4 percent, respectively.
“It is difficult to push for additional overseas buyout projects as the current administration wants to restructure low profitable projects first,’’ said an official from KOGAS.
Overseas projects of KNOC and KOGAS are under reviewing by a task force, launched in June by the Ministry of Trade, Industry and Energy.
Market watchers forecast the task force will propose KNOC and KOGAS to sell some of overseas projects after completing its review within this month.
Along with the new government’s restructuring efforts in the energy sector, however, concerns over losing steam in overseas energy development are picking up as the government has yet to develop a new roadmap for overseas energy development, while issuing anti-overseas energy development policies.
The Park Geun-hye administration has sought policies against overseas energy projects since its launch in March. It cut the 2013 budget for overseas oil and gas investments by 40 percent to 600 billion won ($535 million) compared with annual investments in the past five years and lifted tax befit offered to private overseas energy explorers.
“It is critical for energy-deficient Korea to develop overseas energy assets in a sustainable manner,” said an official from the Korea Energy Economics Institute.
Korea is the world‘s fifth-largest crude oil importer and second-largest liquefied natural gas buyer.
By Seo Jee-yeon (
jyseo@heraldcorp.com)
