EXCLUSIVE-South Korea’s steel giant POSCO reflects on how to exit Myanmar military-backed venture capital sources

* Examination of the opportunity to sell the JV stake or to buy the partner MEHL -sources

* Review comes amid pressure from investors and activists to cut ties

* A number of international companies have already scrapped Myanmar JVs

* Separate and lucrative problem of link clouds between POSCO gas and Myanmar

* POSCO C&C has not paid a dividend to MEHL since the Rohingya crisis of 2017

SEOUL, April 5 (Reuters) – South Korean steel giant POSCO has started examining how it could end a joint venture with a military-controlled company in Myanmar following the February coup, two people with first-hand knowledge of the case told Reuters.

As Burmese military leaders continue a deadly crackdown on protests, killing hundreds, people said the Korean parent company’s POSCO C&C arm is considering selling its 70% stake in the company with Myanmar Economic Holdings Ltd (MEHL), or to buy that of its partner. stake. It was not immediately clear how much the 30% stake might be worth.

The internal talks come as part of an increasingly scrutiny of shareholders and international corporate rights activists who still have partnerships in Myanmar. The companies of Australian giant Woodside Petroleum and Japanese beverage giant Kirin Holdings are among those that have already pulled the plug.

MEHL is one of the Burmese military entities recently sanctioned by the United States and Great Britain. POSCO C&C has repeatedly stated that it has not paid dividends to MEHL since the Rohingya crisis of 2017 sparked international criticism of the Burmese military.

But people familiar with the matter say POSCO is wary of a sudden exit from steel, as it could potentially jeopardize hundreds of millions of dollars earned from more lucrative gas projects operated in conjunction with another company. State of Myanmar through a subsidiary, Posco International. “We won’t want to run the business like we are doing now, and we are considering restructuring our Myanmar operation,” one of the two sources familiar with the talks told Reuters. The individuals refused to be identified, citing internal company policy.

“This does not mean that we are in a rush to make a decision, but two options that could potentially take place include selling our stake or buying their stake (from MEHL).”

POSCO C&C has previously said its company would not be affected by sanctions and would only take action if it found out that MEHL was directly involved in the coup.

MEHL did not respond to Reuters’ request for comment.

‘BIG BUCKS’

The profits that POSCO makes from Myanmar’s steel business – around 2 billion won ($ 1.77 million) last year – are eclipsed by the profits from Myanmar’s gas projects.

About two-thirds of Posco International’s operating profit came from it last year – around 300 billion won ($ 265.5 million) – in partnership with local public energy company Myanmar Oil and Gas Enterprise. (MOGE).

“Relatively speaking, (the) sheet steel business is not making a lot of money. And its ownership structure is much simpler than some of POSCO’s other businesses in Myanmar, ”the company’s second source said.

“But if we go out, it would be important to say ‘goodbye’ on good terms.”

France-based Total and Chevron have also worked for decades with the MOGE, which has yet to be sanctioned, although the UN human rights investigator on last month called for coordinated sanctions.

Getting out of steel rather than gas would also be easier due to a more complex ownership structure in the latter company, the sources say.

While Posco International controls the gas projects through its 51% stake, the Indian company Oil and Natural Gas Corp (ONGC) and GAIL respectively hold 17% and 8.5% of the stakes.

PRESSURE CREATION

International pressure against the military and businesses that have links to it has grown steadily since February, with a death toll of nearly 550 in the two months following the overthrow of Aung’s elected government San Suu Kyi by the generals.

Shin Mee-jee, of South Korea’s People’s Solidarity for Participatory Democracy, was among pressure groups who said the country’s huge national pension fund – the National Pension Service (NPS) – should pressure POSCO to sever ties with the Burmese army.

NPS is POSCO’s largest shareholder, with an 11.1% stake worth $ 2.42 billion, and the third-largest pension fund in the world with nearly $ 1 trillion in assets.

“How absurd, to see our taxpayer’s money being funneled to kill the people of Myanmar through the (pension) … The government must also be more responsible for where the pension fund money goes,” said Shin.

An NPS spokesperson declined to comment when asked if the fund or its steering committee would take action to possibly exclude POSCO from its fund.

Meanwhile, European investors are increasingly interested in POSCO’s plans for Myanmar.

The Swedish public pension fund, which owns POSCO shares, told Reuters it had asked the company about its investments in Myanmar because it was concerned about human rights issues in the country.

Meanwhile, Nordic investor Nordea told the Swedish branch of the Fair Finance network, initiated by Oxfam, that it had put POSCO “in quarantine until further notice” regarding its projects in Myanmar.