Subscribe
E-Paper
By Lee Hyo-sik
Korea Development Bank (KDB) is facing a dilemma over its attempt to sell a controlling stake in Daewoo Engineering & Construction (E&C) as potential bidders are unwilling to pay what the bank wants.
The state-run real estate developer LH's decision to ban Daewoo from bidding for public construction projects has further dampened investor sentiment, according to industry analysts.
They say the state-run bank has to accept what the highest bidder offers if it wants to dispose of its 50.75 percent stake in the builder. Or it could nullify the sale process if it cannot get the bidder to pay the amount it seeks. Either way, KDB will not likely be free from criticism.
According to financial industry sources familiar with the issue, Wednesday, Hoban Construction, U.S. investment company TRAC and two other unnamed investment entities have offered between 1.4 trillion won ($1.27 billion) and 1.5 trillion won for the stake. The four included in the shortlist have been conducting due diligence on Daewoo E&C.
But KDB wants at least 2 trillion won, including a management premium. But the stake is currently valued at about 1.2 trillion won, given Daewoo's share price is hovering around 5,800 won.
In 2010, KDB acquired the builder for 2.2 trillion won from Kumho Asiana Group, which was crumbling under mounting debt. It later injected an additional 1 trillion won into Daewoo when the latter issued new shares.
"It is not accurate to evaluate a corporation only by looking at its current stock price," a KDB official said. "The share prices can go up or drop at any given time, so we have to focus on Daewoo's fundamental strengths if we want to measure its true value."
Two sales managers, Mirae Asset Daewoo and Bank of America Merrill Lynch, plan to organize a final bid in late December and select a preferred bidder in January. If everything goes as planned, KDB expects to sign a stock purchase agreement for its stake in the builder in April.
But given the bidders' apparent unwillingness to pay more than 1.5 trillion won, KDB will likely have to make a difficult decision as to whether to proceed with the sale and accept the highest bid, or cancel the sale.
"I think the state-run bank is in a difficult position, because whatever decision it makes, it will be criticized for incompetence," a construction industry official said.
"In the end, it is up to KDB's top management over whether to dispose of the Daewoo stake for a lower price, or suspend the sale process and wait for the builder's stock to go up," he said.
Daewoo's inability to bid for public works for the next three months has also added woes to the sale process.
