| 38. | Commitments and Contingencies |
(a) Contingent liabilities
Contingent liabilities may develop in a way not initially expected. Therefore, management continuously assesses contingent liabilities to determine whether an outflow of resources embodying economic benefits has become probable. If it becomes probable that an outflow of future economic benefits will be required for an item previously dealt with as a contingent liability, a provision is recognized in the consolidated financial statements of the period in which the change in probability occurs (except in the extremely rare circumstances where no reliable estimate can be made).
Management makes estimates and assumptions that affect disclosures of commitments and contingencies. All estimates and assumptions are based on the evaluation of current circumstances and appraisals with the supports of internal specialists or external consultants.
Management regularly analyzes current information about these matters and provides for probable contingent losses including the estimate of legal expense to resolve the matters. Internal and external lawyers are used for these assessments. In making the decision regarding the need for a provision, management considers whether the Company has an obligation as a result of a past event, whether it is probable that an outflow or cash or other resources embodying economic benefits will be required to settle the obligation and the ability to make a reliable estimate of the amount of the obligation.
(b) Details of guarantees
Contingent liabilities on outstanding guarantees provided by the Company as of December 31, 2017 are as follows:
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Guarantee limit |
Guarantee amount | |||||||||||||||||||||
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Guarantors |
Guarantee beneficiary |
Financial |
Foreign currency |
Won equivalent |
Foreign currency |
Won equivalent |
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| (in millions of Won) | ||||||||||||||||||||||
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[The Company] |
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POSCO |
POSCO Asia Co., Ltd. | BOC | USD | 50,000,000 | 53,570 | 50,000,000 | 53,570 | |||||||||||||||
| POSCO ASSAN TST STEEL INDUSTRY | SMBC and others | USD | 146,527,500 | 156,990 | 131,874,750 | 141,291 | ||||||||||||||||
| POSCO COATED STEEL (THAILAND) CO., LTD. | The Great&CO Co.,Ltd (SPC) | THB | 5,501,000,000 | 180,268 | 5,501,000,000 | 180,268 | ||||||||||||||||
| POSCO Maharashtra Steel Private Limited | Export-Import Bank of Korea and others | USD | 649,853,000 | 696,252 | 323,918,500 | 347,045 | ||||||||||||||||
| POSCO MEXICO S.A. DE C.V. | BOA and others | USD | 160,000,000 | 171,424 | 160,000,000 | 171,424 | ||||||||||||||||
| POSCO SS-VINA CO., LTD. | Export-Import Bank of Korea and others | USD | 354,351,050 | 379,652 | 314,599,225 | 337,062 | ||||||||||||||||
| POSCO VST CO., LTD. | ANZ and others | USD | 65,000,000 | 69,641 | 8,125,000 | 8,706 | ||||||||||||||||
| POSCO-VIETNAM Co., Ltd. | Export-Import Bank of Korea | USD | 196,000,000 | 209,994 | 196,000,000 | 209,994 | ||||||||||||||||
| PT. KRAKATAU POSCO | Export-Import Bank of Korea and others | USD | 1,350,300,000 | 1,446,711 | 1,187,394,785 | 1,272,174 | ||||||||||||||||
| Zhangjiagang Pohang Stainless Steel Co., Ltd. | BTMU and others | CNY | 760,500,000 | 124,456 | 684,450,000 | 112,011 | ||||||||||||||||
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POSCO DAEWOO Corporation |
Daewoo Global Development. Pte., Ltd | Export-Import Bank of Korea | USD | 21,633,300 | 23,178 | 21,633,300 | 23,178 | |||||||||||||||
| MIRAE ASSET DAEWOO CO.,LTD. | KRW | 29,137 | 29,137 | 10,703 | 10,703 | |||||||||||||||||
| Daewoo Power PNG Ltd. | Export-Import Bank of Korea | USD | 54,400,000 | 58,284 | 54,400,000 | 58,284 | ||||||||||||||||
| Daewoo Textile LLC | Export-Import Bank of Korea | USD | 4,000,000 | 4,286 | 4,000,000 | 4,286 | ||||||||||||||||
| POSCO ASSAN TST STEEL INDUSTRY | ING and others | USD | 14,652,750 | 15,699 | 14,652,750 | 15,699 | ||||||||||||||||
| POSCO DAEWOO INDIA PVT., LTD. | Shinhan Bank and others | USD | 162,400,000 | 173,995 | 51,237,684 | 54,896 | ||||||||||||||||
| SC Bank and others | INR | 7,350,000,000 | 122,892 | 2,037,278,075 | 34,063 | |||||||||||||||||
| PT. Bio Inti Agrindo | Export-Import Bank of Korea and others | USD | 120,875,000 | 129,505 | 120,875,000 | 129,505 | ||||||||||||||||
| Songdo Posco family Housing | SAMSUNG SECURITIES CO.,LTD and others | KRW | 70,000 | 70,000 | 49,500 | 49,500 | ||||||||||||||||
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POSCO ENGINEERING & CONSTRUCTION CO., LTD. |
POSCO E&C Vietnam Co., Ltd. | Export-Import Bank of Korea | USD | 30,000,000 | 32,142 | 30,000,000 | 32,142 | |||||||||||||||
| HONG KONG POSCO E&C (CHINA) INVESTMENT Co., Ltd. | Woori Bank and others | USD | 138,000,000 | 147,853 | 138,000,000 | 147,853 | ||||||||||||||||
| POSCO ENGINEERING & CONSTRUCTION DO BRAZIL LTDA. | HSBC | USD | 100,000,000 | 107,140 | 100,000,000 | 107,140 | ||||||||||||||||
| POSCO ENGINEERING (THAILAND) CO., LTD. | POSCO Asia Co., Ltd | USD | 39,451,000 | 42,268 | 39,451,000 | 42,268 | ||||||||||||||||
| POSCO Engineering and Construction India Private Limited | Woori Bank | USD | 2,100,000 | 2,250 | 2,100,000 | 2,250 | ||||||||||||||||
| PT PEN INDONESIA | POSCO Asia Co., Ltd. | USD | 5,000,000 | 5,357 | 5,000,000 | 5,357 | ||||||||||||||||
| PT. POSCO E&C INDONESIA | BNP Indonesia | IDR | 79,000,000,000 | 6,241 | 79,000,000,000 | 6,241 | ||||||||||||||||
| Songdo Posco family Housing | SAMSUNG SECURITIES CO.,LTD and others | KRW | 70,000 | 70,000 | 49,500 | 49,500 | ||||||||||||||||
| Daewoo Global Development. Pte., Ltd | POSCO Asia Co., Ltd. and others | USD | 68,719,200 | 73,626 | 59,088,100 | 63,307 | ||||||||||||||||
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POSCO ICT |
PT.POSCO ICT INDONESIA | POSCO Asia Co., Ltd. | USD | 1,500,000 | 1,607 | 1,500,000 | 1,607 | |||||||||||||||
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POSCO CHEMTECH |
PT.Krakatau Posco Chemtech Calcination | Hana Bank | USD | 33,600,000 | 35,999 | 20,705,882 | 22,184 | |||||||||||||||
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POSCO COATED & COLOR STEEL Co., Ltd. |
Myanmar POSCO C&C Company, Limited. | POSCO Asia Co., Ltd. and others | USD | 13,986,947 | 14,985 | 13,986,947 | 14,985 | |||||||||||||||
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POSCO ENERGY CO., LTD. |
PT. KRAKATAU POSCO ENERGY | Export-Import Bank of Korea and others | USD | 193,900,000 | 207,744 | 137,396,174 | 147,206 | |||||||||||||||
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POSCO Asia Co., Ltd. |
POSCO ASSAN TST STEEL INDUSTRY | SMBC | USD | 25,000,000 | 26,785 | 25,000,000 | 26,785 | |||||||||||||||
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[Associates and joint ventures] |
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POSCO |
CSP — Compania Siderurgica do Pecem | Export-Import Bank of Korea and others | USD | 420,000,000 | 449,990 | 420,000,000 | 449,990 | |||||||||||||||
| BNDES | BRL | 464,060,000 | 150,100 | 464,060,000 | 150,100 | |||||||||||||||||
| LLP POSUK Titanium | SMBC | USD | 15,000,000 | 16,071 | 15,000,000 | 16,071 | ||||||||||||||||
| Nickel Mining Company SAS | SMBC | EUR | 46,000,000 | 58,846 | 37,000,000 | 47,332 | ||||||||||||||||
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POSCO DAEWOO Corporation |
GLOBAL KOMSCO Daewoo LLC | Industrial & Commercial Bank of China | USD | 8,225,000 | 8,812 | 8,225,000 | 8,812 | |||||||||||||||
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POSCO ENGINEERING & CONSTRUCTION CO., LTD. |
New Songdo International City Development, LLC | Others | KRW | 340,000 | 340,000 | 317,900 | 317,900 | |||||||||||||||
| UITrans LRT Co., Ltd. | Kookmin Bank and others | KRW | 20,740 | 20,740 | 20,740 | 20,740 | ||||||||||||||||
| Chun-cheon Energy Co., Ltd | Kookmin Bank and others | KRW | 11,600 | 11,600 | 10,993 | 10,993 | ||||||||||||||||
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POSCO ICT |
Incheon-Gimpo Expressway co., Ltd. | Korea Development Bank | KRW | 100,000 | 100,000 | 100,000 | 100,000 | |||||||||||||||
| UITrans LRT Co., Ltd. | Kookmin Bank | KRW | 76,000 | 76,000 | 76,000 | 76,000 | ||||||||||||||||
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POSCO CHEMTECH |
KRAKATAU POS-CHEM DONG-SUH CHEMICAL | Hana Bank | USD | 1,140,000 | 1,221 | 1,140,000 | 1,221 | |||||||||||||||
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POSCO(Suzhou) Automotive Processing Center Co.,Ltd. |
POS-InfraAuto (Suzhou) Co., Ltd | Korea Development Bank | USD | 780,000 | 836 | 780,000 | 836 | |||||||||||||||
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[Others] |
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POSCO DAEWOO Corporation |
Ambatovy Project Investments Limited and others | Export-Import Bank of Korea | USD | 87,272,727 | 93,504 | 28,325,258 | 30,348 | |||||||||||||||
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POSCO ENGINEERING & CONSTRUCTION CO., LTD. |
Ecocity CO.,LTD and others | Others | KRW | 960,011 | 960,011 | 446,098 | 446,098 | |||||||||||||||
| AN KHANH NEW CITY DEVELOPMENT J.V CO., LTD. | POSCO Asia Co., Ltd. and others | USD | 150,000,000 | 160,710 | 150,000,000 | 160,710 | ||||||||||||||||
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POSCO ICT |
SMS Energy and others | Hana Bank and others | KRW | 104,880 | 104,880 | 73,676 | 73,676 | |||||||||||||||
| Hyochun CO., LTD | Daegu Bank and others | KRW | 39,575 | 39,575 | 39,575 | 39,575 | ||||||||||||||||
| BLT Enterprise and others | Kyobo Life Insurance Co.,Ltd and others | KRW | 1,163,585 | 1,163,585 | 1,163,585 | 1,163,585 | ||||||||||||||||
|
POSCO AUSTRALIA PTY LTD |
Department of Trade and Investment(NSW Government) | Woori Bank and others | AUD | 25,260,721 | 21,097 | 25,260,721 | 21,097 | |||||||||||||||
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| USD | 4,683,667,474 | 5,018,081 | 3,834,409,355 | 4,108,186 | ||||||||||||||||||
| KRW | 2,985,528 | 2,985,528 | 2,358,270 | 2,358,270 | ||||||||||||||||||
| CNY | 760,500,000 | 124,456 | 684,450,000 | 112,011 | ||||||||||||||||||
| INR | 7,350,000,000 | 122,892 | 2,037,278,075 | 34,063 | ||||||||||||||||||
| IDR | 79,000,000,000 | 6,241 | 79,000,000,000 | 6,241 | ||||||||||||||||||
| THB | 5,501,000,000 | 180,268 | 5,501,000,000 | 180,268 | ||||||||||||||||||
| EUR | 46,000,000 | 58,846 | 37,000,000 | 47,332 | ||||||||||||||||||
| AUD | 25,260,721 | 21,097 | 25,260,721 | 21,097 | ||||||||||||||||||
| BRL | 464,060,000 | 150,100 | 464,060,000 | 150,100 | ||||||||||||||||||
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(c) POSCO ENGINEERING & CONSTRUCTION CO., LTD. has provided the completion guarantees for Samsung C&T Corporation amounting to ￦395,792 million while Samsung C&T Corporation has provided the construction guarantees or payment guarantees on customers’ borrowings on behalf of POSCO ENGINEERING & CONSTRUCTION CO., LTD. amounting to ￦269,455 million as of December 31, 2017.
(d) Other commitments
Details of other commitments of the Company as of December 31, 2017 are as follows:
|
POSCO |
POSCO entered into long-term contracts to purchase iron ore, coal, nickel and others. The contracts of iron ore and coal generally have terms of more than three years and the contracts of nickel have terms of more than one year. These contracts provide for periodic price adjustments based on the market price. As of December 31, 2017, 116 million tons of iron ore and 18 million tons of coal remained to be purchased under such long-term contracts.
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POSCO entered into an agreement with Tangguh Liquefied Natural Gas (LNG) Consortium in Indonesia to purchase 550 thousand tons of LNG annually for 20 years commencing in August 2005. The purchase price is subject to change, based on changes of the monthly standard oil price (JCC) and with a price ceiling.
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As of December 31, 2017, the Company entered into commitments with KOREA ENERGY AGENCY for long-term foreign currency borrowings, which enables the Company to borrow up to the amount of USD 6.49 million. The borrowings are related to the Company’s the exploration of gas hydrates in Western Fergana-Chinabad. The repayment of the borrowings depends on the success of the projects. The Company is not liable for the repayment of full or part of the amount borrowed if the respective projects fail. The Company has agreed to pay a certain portion of its profits under certain conditions, as defined by the borrowing agreements. As of December 31, 2017, the ending balance of the borrowing amounts to USD 1.02 million.
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| POSCO has provided a supplemental funding agreement, as the largest shareholder, as requested from the creditors, including Norddeutsche Landesbank, for seamless funding to POSCO ENERGY Co., Ltd. under construction of new power plant. | ||
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The Company provides a supplementary fund of up to ￦9.8 billion to the Company’s subsidiary, Busan E&E Co., Ltd., at the request of creditors such as the Korea Development Bank.
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The Company provides supplementary funding for the purpose of promoting the Suncheon Bay PRT business of Suncheon Eco Trans Co., Ltd, a subsidiary of the Company, at the request of creditors.
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| POSCO ENGINEERING & CONSTRUCTION CO., LTD. |
As of December 31, 2017, POSCO ENGINEERING & CONSTRUCTION CO., LTD. has foreign currency guarantee of up to USD 2,311 million and uses USD 1,306 million with Woori Bank and others.
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POSCO ICT |
As of December 31, 2017, in relation to contract enforcement, POSCO ICT was provided with ￦143,582 million and ￦22,432 million guaranties from Korea Software Financial Cooperative and Seoul Guarantee Insurance, respectively. | |
(e) Litigation in progress
As of December 31, 2017, litigations in progress that POSCO and certain subsidiaries are defendants in legal actions arising from the normal course of business are as follows:
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Company |
Legal actions |
Claim amount |
Korean Won equivalent |
Description |
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| (In millions of Won, in thousands of foreign currencies) | ||||||||||||||||
|
POSCO |
15 | KRW | 23,037 | 23,037 | Lawsuit on claim for employee right and others(*1) | |||||||||||
| 1 | USD | 1,583 | 1,696 | Arbitration on trading and others | ||||||||||||
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POSCO DAEWOO Corporation |
2 | EUR | 2,747 | 3,514 | Lawsuit on claim for damages and others | |||||||||||
| 3 | INR | 4,518,694 | 75,553 | Lawsuit on claim for payment on guarantees and others(*1) | ||||||||||||
| 10 | KRW | 9,903 | 9,903 | Lawsuit on claim for payment and others | ||||||||||||
| 3 | USD | 22,228 | 23,815 | Lawsuit on claim for damages and others(*1) | ||||||||||||
| 1 | PKR | 124,775 | 1,208 | Lawsuit on claim for damages | ||||||||||||
| 1 | CAD | 79,000 | 67,363 | Lawsuit on claim for damages | ||||||||||||
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POSCO ENGINEERING & CONSTRUCTION CO., LTD. |
104 | KRW | 461,134 | 461,134 | Arbitration on construction costs allocation and others | |||||||||||
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POSCO ICT |
13 | KRW | 9,894 | 9,894 | Lawsuit on claim for payment and others | |||||||||||
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POSCO A&C |
3 | KRW | 3,985 | 3,985 | Lawsuit on claim for payment on construction | |||||||||||
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POSCO ENERGY CO., LTD. |
4 | KRW | 7,017 | 7,017 | Lawsuit on claim for damages and revocation of electricity supply contract and others | |||||||||||
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POSCO E&C CHINA CO., LTD. |
11 | CNY | 13,679 | 2,239 | Lawsuit on claim for payment of reserve for construction warranty and others | |||||||||||
| 1 | KRW | 3,305 | 3,305 | Lawsuit on claim for payment on construction | ||||||||||||
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Posco e&c Songdo International Building |
3 | KRW | 892 | 892 | Lawsuit on affirmation of the non-existence of general meeting of stockholders and others | |||||||||||
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POSPOWER CO., Ltd. |
1 | KRW | 1,000 | 1,000 | Lawsuit on claim for damages | |||||||||||
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POSCO ENGINEERING(THAILAND) CO., LTD. |
7 | THB | 724,400 | 23,739 | Lawsuit on claim for payment on construction | |||||||||||
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POSCO TNPC Otomotiv Celik San. Ve Tic. A.S |
6 | TRY | 31 | 9 | Lawsuit on claim for unfair dismissal and others | |||||||||||
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PT. KRAKATAU POSCO |
1 | IDR | 324,858,033 | 25,664 | Lawsuit on claim for payment on construction | |||||||||||
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POSCO(Dalian)IT Center Development Co., Ltd. |
2 | CNY | 423 | 69 | Lawsuit over contract dispute dealing apartment | |||||||||||
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Brazil Sao Paulo Steel Processing Center |
3 | BRL | 12,167 | 3,935 | Lawsuit on claim for payment on construction and others | |||||||||||
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POSCO ENGINEERING &CONSTRUCTION DO BRAZIL LTDA. |
184 | BRL | 121,058 | 39,156 | Lawsuit on claim for damages and others(*1) | |||||||||||
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HONG KONG POSCO E&C (CHINA) INVESTMENT Co., Ltd. |
1 | KRW | 3,305 | 3,305 | Lawsuit on claim for payment on construction | |||||||||||
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POSCO India Chennai Steel Processing Center Pvt.Ltd. |
6 | USD | 8,409 | 9,009 | Lawsuit on custom duty and others | |||||||||||
| (*1) | The Company made a reliable estimate in 163 lawsuits by considering the possibility and amount of outflow of resources and recognized ￦27,963 million as provision for legal contingencies and claims. |
For all the other lawsuits and claims, management does not believe the Company has any present obligations and therefore, the Company has not recognized any provisions as of December 31, 2017 for the matters.