POSCO in Brazil: a billion-real liability and a bankruptcy under suspicion
POSCO Engenharia e Construção do Brasil Ltda. — a wholly-owned subsidiary of the South Korean steel conglomerate POSCO — was set up to execute the Companhia Siderúrgica do Pecém (CSP) project in Ceará, under a contract valued at roughly USD 5.5 billion. Once the work was completed and the profits collected, the company filed for self-bankruptcy in Ceará declaring a symbolic cash balance. Based on documents filed in the bankruptcy case and on press coverage, the actual liability in Brazil exceeds R$ 1.1 billion.
How POSCO arrived in Brazil
POSCO Holdings INC., a publicly listed South Korean conglomerate (ADRs traded on the New York Stock Exchange under the ticker PKX), joined Vale S.A. and South Korea's Dongkuk Steel to form Companhia Siderúrgica do Pecém (CSP) in Ceará — the first integrated steel mill in Brazil's North-Northeast.
Instead of hiring an independent contractor in open competition, CSP awarded the work to a sister company within the group — POSCO Engineering & Construction Co. Ltd. (now POSCO Eco & Challenge) — for approximately USD 5.5 billion. To run the project in Brazil, the Korean company opened POSCO Engenharia e Construção do Brasil Ltda., holding 99% of its shares (the remaining 1% went to a foreign executive of the group itself). In practice, this is a wholly-owned subsidiary with no decision-making autonomy from the Korean parent.
The project was installed within the Pecém Export Processing Zone (ZPE), with broad tax exemptions, and relied on public infrastructure and on the work of Northeastern businesses and families.
After the construction was completed in late 2016, POSCO Holdings sold its stake in CSP to ArcelorMittal in 2022. Combined with the construction profits, this sale is described as having produced a double gain for the group, while the Brazilian subsidiary was financially drained, making it impossible to pay the creditors left behind.
The self-declared liability: R$ 667 million
The creditors below were self-declared by POSCO itself in the initial self-bankruptcy petition filed in Ceará — not an independent list. Even so, they total around 50 creditors and an approximate acknowledged liability of R$ 667,000,000.00.
| Creditor class | Amount (R$) |
|---|---|
| Class I — Labor | 585,000,000.00 |
| Class III — Tax | 44,000,000.00 |
| Class VI — Unsecured | 11,000,000.00 |
| Class VIII — Subordinated* | 27,000,000.00 |
| Total | ~667,000,000.00 |
* The Class VIII credit arises from a loan agreement with the Korean controlling shareholder itself — without interest, indexation or a payment date — described in the case file as a vehicle to remit funds abroad rather than a genuine debt.
Per the very list presented, these credits cannot be reversed: they are already final and binding or subject to extrajudicial enforcement instruments.
The real liability exceeds R$ 1.1 billion
The bankruptcy case file itself and searches in tax-enforcement systems indicate that the real liability is substantially larger than what was declared:
- Identified tax debts (SANTOS CMI): Eight tax enforcement actions were identified in different states involving a company indicated by creditors as a repository for tax debts. The total debt in these actions amounts to approximately R$ 440,879,584.69 — of which R$ 317.5 million was identified in a single tax enforcement action (no. 0813125-67.2023.4.05.8100). These amounts do not appear in the self-bankruptcy list of creditors.
- Concealed Escrow Account: an escrow account holding over R$ 500 million, tied to the CSP contract, omitted from the asset schedule presented to the court.
- Concealed judicial deposit: a deposit exceeding R$ 30 million, linked to tax-enforcement action no. 0815452-58.2018.4.05.8100, not presented as an asset.
- Ongoing actions: cases not yet final and binding project further relevant liabilities.
Adding the declared liability (R$ 667 million) and the undeclared tax liability (R$ 440.8 million), the real position exceeds R$ 1.1 billion — not counting arbitrations and sealed proceedings.
Conduct identified in the bankruptcy case
The self-bankruptcy is described not as a genuine insolvency event but as a strategic instrument for capital flight. The conduct below is described based on documents filed in the case and accounts by former employees and service providers:
| # | Conduct described in the bankruptcy case file |
|---|---|
| 1 | Bankruptcy described as planned to frustrate creditors and shield the parent company |
| 2 | De facto management of the Brazilian subsidiary from Korea |
| 3 | Simulated loans — capital injections recorded as “loans” with no term, interest or amortization |
| 4 | Draining of judicial accounts before other creditors could access them |
| 5 | Omission of relevant liabilities and assets in the bankruptcy filing |
| 6 | Concealment of an Escrow Account holding over R$ 500 million |
| 7 | Concealment of a judicial deposit exceeding R$ 30 million |
| 8 | Attempt to sell real estate to convert assets into cash |
| 9 | Corporate restructurings to deflect liability from the holding company |
| 10 | Conditioning severance payments on waiving claims in the bankruptcy |
| 11 | Indications of labor-law irregularities to reduce obligations |
SANTOS CMI: the shielding layer
POSCO Engenharia itself was required to include a SANTOS CMI debt in its list of creditors in the bankruptcy — which is pointed out as a formal recognition of the connection between the companies by POSCO itself. The reading presented is that SANTOS CMI functioned as an additional layer of asset shielding, concentrating tax obligations while the decision-making center remained in the Korean group.
- 01/11/2011 — Through a Stock Purchase Agreement, POSCO Engineering & Construction Co. Ltd., together with Daewoo Engineering Co., Ltd., acquired a significant stake in SANTOS CMI for USD 21.21 million, placing the company inside the economic perimeter of the “CSP Project”.
- 12/23/2016 — Right after the construction was completed, the same POSCO Engineering & Construction Co. Ltd. sold SANTOS CMI for just USD 6 million — far below the purchase price — to two foreign buyers (International Asset Advisory S.A. and International Asset Allocation S.A.).
- From January 2017 onwards — Tax-enforcement actions began against SANTOS CMI. One case file contains a handwritten note from a tax auditor suggesting a connection between the structure and the international Panama Papers scandal.
Documents filed by POSCO itself in a tax-enforcement case (no. 0806907-91.2021.4.05.8100) and in the bankruptcy case reveal the arc of transactions detailed above.
Piercing the corporate veil (IDPJ)
POSCO's narrative that the self-bankruptcy would be a “winning strategy” is contested by rulings already obtained:
- Final arbitral awards — Campelo Costa Sociedade de Advogados, a creditor with credits recognized in two final and binding arbitrations, obtained, in arbitral enforcement, the piercing of the corporate veil (IDPJ) reaching the direct parent (POSCO Engineering & Construction Co. Ltd.) and the holding company (POSCO Holdings INC.).
- 05/11/2026 — The court granted the processing of an IDPJ against POSCO Engineering & Construction Co. Ltd. within the self-bankruptcy itself, including it on the defendant side of the bankruptcy, with full due process guarantees.
The reported consequence: the subsidiary's self-bankruptcy does not interrupt the accrual of interest and monetary correction against the foreign companies already held liable — the group's liability keeps growing.
Timeline
Acquisition of SANTOS CMI
POSCO Engineering & Construction and Daewoo acquire SANTOS CMI for USD 21.21 million, within the “CSP Project”.
EPC contract with CSP
POSCO Engenharia and its Korean parent sign the Engineering, Procurement and Construction contract for the steel mill (~USD 5.5 billion).
CSP construction completed
The Brazilian subsidiary completes the works and awaits final contract measurement.
Sale of SANTOS CMI
SANTOS CMI is sold for just USD 6 million to two foreign buyers.
Exit from CSP
POSCO sells its stake in CSP to ArcelorMittal.
Self-bankruptcy filing in Ceará
POSCO Engenharia e Construção do Brasil, linked to the former CSP, files for self-bankruptcy (autofalência) in the Ceará courts. It acknowledges a R$ 667 million liability — which creditors estimate may reach R$ 1 billion — leaving at least 16 Ceará businesses unpaid (a list that later grows to roughly 40–47 creditors).
R$ 109.80 declared in cash
In the same bankruptcy petition, the company declares it holds only R$ 109.80 in its bank account, about R$ 4,800 in investments, a non-working vehicle and a plot of land — against a billion-real liability.
Court reaches the foreign parent company
In a first-instance preliminary ruling, the Ceará court recognizes commingling of assets and grants the piercing of the corporate veil, extending liability to the South Korean parent (POSCO Engineering & Construction Co. and POSCO Holdings Inc.).
The case breaks in the national and international press
Brazilian outlets begin wide coverage from January 15. Days later, South Korean outlets such as Newswell and Business Korea pick up the story, and Conjur publishes a legal analysis of the veil-piercing decision.
Executives sought through international cooperation
Press reports that Korean executives linked to the default are being sought through international judicial cooperation, a process led by the Brazilian Federal Prosecution Service (MPF) and involving Interpol.
Ceará court holds the Korean group liable
A court decision made public in mid-May holds the group liable for the billion-real debt and authorizes creditors to pursue the parent company's assets abroad. Around the same time, former Justice Minister José Eduardo Cardozo joins the Brazilian creditors' side.
Why it matters
The case goes beyond a single contract. It exposes a pattern: opaque corporate structure, artificial separation between parent and subsidiary, and direct impact on suppliers, workers and Northeastern families who made CSP possible.
More than a regional dispute, it is a test for the credibility of the ZPE-Pecém incentive regime, for the integrity of the Brazilian bankruptcy system, and for the trade relationship between Brazil and South Korea. The main concern is the demonstration effect: if the outcome POSCO seeks prevails without an institutional response, other multinationals may replicate the model — collecting billion-real payments for infrastructure works and leaving behind a billion-real liability with no consequence.
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