SEOUL, KOREA - Dongkuk Steel said on April 8 in a regulatory filing that it would provide a guarantee of US$900 million to CSP (Companhia Siderurgica do Pecem), a joint venture with POSCO and Vale S.A. of Brazil, in building an integrated steel works in northeastern Brazil. This is equivalent to 36.2 percent of the company's equity capital.

 

CSP will soon ask for a long-term loan (up to 14 years) of $2.9 billion from Korea EximBank, Korea Trade Insurance Corp., and the Brazilian Development Bank (BNDES). While waiting for the syndicate loan being organized, the company will get one-year bridge loan from the Korea Finance Corp., Nonghyup Bank, HSBC, and Santander Bank and pay it back once the creditor bank group is up and running.

 

As part of the arrangement, Dongkuk Steel has agreed to provide a guarantee of $900 million, as it owns a 30-percent stake in CSP. In the same way, other investment partners including POSCO (20%) and Vale (50%) will offer guarantees proportional to their equity stake.

 

In order to make the guarantee more secure, Dongkuk Steel will ask Vale to provide additional guarantees. To do so, according to the disclosure document, the company may provide the physical assets in Pohang and Dangjin as subordinated collateral or its equity stake in CSP. According to analysts, it may be a factor that can reduce the company's ability to mobilize working capital.