The Seoul Central District Public Prosecutors Office is investigating Dongkuk Steel, a partner at with Vale and Posco at a joint venture steel project in the state of Ceara, Brazil, according to media reports.
Prosecutors reportedly raided the company’s headquarters in Seoul, as well as the house of its CEO, Jang Se-joo, on claims that the firm stashed $9.06 million into US accounts in order to avoid taxes. The company is also suspected of exaggerating the sales price of raw materials it sold to Russian and Japanese buyers, media reports said.
According to a media report, the scandal could potentially delay the Companhia Siderúrgica do Pecém (CSP) steel mill project in Brazil.
“Market insiders are now expressing doubts about whether the steelmaker will be able to complete its mammoth project to build a steel mill in northwestern Brazil by the end of this year, citing the probe, the widened deficit the company posted last year and a continued slowdown in the global steel industry,” a report said.
In a meeting with shareholders a day before the raid, Dongkuk said the Brazilian project is nearing fruition and the company is “assured to see a profit turnaround starting 2017 after it begins operations in earnest.”
A Dongkuk employee cited by a news report said the CSP project in Brazil is the company’s “only hope for the firm’s turnaround.”
“If this doesn’t go well, I don’t know how we’ll survive in the market,” the anonymous source said.
Earlier this month, Brazil’s development bank BNDES said it was analyzing the possibility of granting CSP a $1 billion loan. According to media reports, the CSP steel mill has a $4.8 billion expected investment.
Negotiations for long-term loans are “advanced” and the company expects to complete the BNDES load in the first half of this year, media reports said, adding that banks other than BNDES should complete the total investment.
Those financial institutions include Korea Trade Insurance Corporation (Ksure) and the Korea EximBank. The total expected investment is still being analyzed. If approved, the BNDES loan could be the last the Brazilian bank provides for the industry in 2015, according to media reports.