POSCO INTERNATIONAL : merges with POSCO ENERGY, becoming an international comprehensive energy company

- The merger was decided on at board meetings held by the two companies on August 12, to be approved on the stockholders' meeting in November and then completed on January 1, 2023

- It was promoted as a proactive response to substantial changes in the energy market that can achieve quantitative and qualitative growth

- As it completes its LNG business value chain, it strengthens its status as a core affiliate with KRW 40 trillion in sales and KRW 1 trillion in operating profit

- A display of resolve to tackle energy security after food security in the midst of the energy issues within the supply network crisis

POSCO INTERNATIONAL is merging with POSCO ENERGY, as it continues along its path to becoming a major international energy company. The merger is expected to produce an energy giant with approximately KRW 40 trillion in sales and KRW 1 trillion or more in operating profit.

At its board meeting on August 12, POSCO INTERNATIONAL passed a decision to merge with POSCO ENERGY The merger is to be approved at the stockholders' meeting on November 4 and then completed on January 1, 2023.

The merger ratio between the two companies is 1:1.1626920 based on POSCO INTERNATIONAL's asset value and POSCO ENERGY's asset value*. In accordance with the merger ratio, POSCO INTERNATIONAL will issue new merger stocks as the listed company and deliver 46,780,340 shares to POSCO Holdings, POSCO ENERGY's shareholder. POSCO INTERNATIONAL's new stocks will be listed on January 20, 2023. After the merger, POSCO Holdings will hold 70.7% of the shares, as the largest shareholder.

* Calculated with a weighted average between earning power value and asset value, with a ratio of 1.5:1

The merger of the two companies was driven by the need to respond to the substantial changes in the energy market in the midst of the supply network crisis and lead the quantitative and qualitative growth of the energy business.

POSCO INTERNATIONAL has been expanding its business portfolio from trading to energy and agro. Based on its success with gas fields in Myanmar, it has made considerable efforts to procure new deposits by exploring mining areas in Malaysia, Indonesia, etc. After acquiring Australia's Senex Energy, it has readied itself to leap into the position of a global player in the energy industry.

As the first and biggest private power generator in Korea, POSCO ENERGY makes stable profits through its gas business centered around downstream, including Incheon LNG terminal and Gwangyang LNG terminal. It has recently been expanding its business overseas to power generation in Indonesia and other countries and also has made headway into renewable energies, including solar power and wind power.

With this merger, POSCO INTERNATIONAL completes the whole value chain of natural gas business from exploration to production, storage, and generation, and procures the drive to accelerate its growth investment with environment-friendly businesses, including renewable and hydrogen energy.

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The merger between the two companies can be summarized as having three synergy : Strengthening energy business efficiency and competency, leading the environment-friendly energy industry, and contributing to national energy security.

First of all, it integrates the energy business functions that had been separated within the group to considerably increase operation efficiency. Before the merger, POSCO INTERNATIONAL was in charge of natural gas production and trading while POSCO ENERGY was responsible for storage and power generation. The merger serves to remove some redundant functions, including purchase and reselling.

The company's global competency in the rapidly changing energy market will also be getting a boost through this merger. As it can now respond to fluctuations in global market status flexibly while maintaining a supply-demand balance based on captive quantities used in LNG terminals and gas power generators and increasing LNG trading quantities among many others, production stability and sales profitability are expected to increase significantly.

Second, POSCO Group's goals of diversifying its power generation business and environment-friendly energy enterprise are also expected to garner strength. POSCO INTERNATIONAL set its 2030 goals of increasing its natural gas deposits by 2.8 times, LNG transaction volume by 9.1 times, power generated by 1.7 times, and renewable energy power generated by 24 times compared to 2021.

* Natural gas deposit at 0.9 TCF (2021) → 2.5 TCF (2030), LNG transaction volume at 1.31 million tons (2021) → 12 million tons (2030), Power generated at 3.6 GW (2021) → 6.1 GW (2030), Renewable energy power generated at 0.1 GW(2021) → 2.4 GW(2030)

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To achieve this, it will slowly procure more deposits through new explorations and increased production and expedite its gas to power business centered around strategic overseas areas. Moreover, the low-carbon energy production and generation system using hydrogen will be implemented gradually, and various environment-friendly energy business including domestic and international solar power, land-based/offshore wind power, ammonia infrastructure, and CCUS (carbon capture, utilization, and storage) are set to gain traction as well. In addition, the merged company will make major headway into export terminal enterprises, involving liquefaction of natural gas into LNG before long-distance transportation.

Finally, the merger is also expected to contribute to energy security amid the intensifying supply network crisis. As the first private power generator and the first private company to succeed in developing overseas gas fields, respectively, POSCO INTERNATIONAL and POSCO ENERGY have both been building their capabilities over the years. As the demand for LNG as a bridge energy is expected to rise, Senex Energy's production will be tripled by 2025 to import a portion into Korea, and contracts to import 400,000 tons of LNG from US into Korea annually has been signed as well, among many other moves to bolster energy security.

As a spokesperson for POSCO Holdings put it, "the merger is the first signal of our restructuring for the synergy of group enterprises to promote POSCO INTERNATIONAL as a core affiliate of the POSCO Group after the shift of the holding company. The growth investment will accelerate to reach a level befitting the scale of the group's core affiliate, and this will prove positive for the future of POSCO Holdings' enterprise value in the future."

POSCO INTERNATIONAL recorded KRW 19.5 trillion in sales and KRW 160 billion in operating profit in 2011 right after its addition into the POSCO Group, and then went on to show considerable growth, with KRW 34 trillion in sales and KRW 600 billion in operating profit on 2021, increases of 1.7 and 3.5 times, respectively. With the recent business portfolio well-balanced between trading, energy, and investment, it has been making stable profits even in the current stagnant market.

With this merger, POSCO INTERNATIONAL will be prepared to go for a corporate market capitalization of KRW 13 trillion in 2030 and a sturdier position as a core affiliate within the group, as the 100th anniversary of POSCO Group approaches.