Kumho Asiana Group to Sell Daewoo Engineering for $2.5 Billion

“The group is devastated,”  Oh Nam-soo, Kumho Asiana’s president for strategic management.

After much speculation, and a hectic last few days, Bloomberg’s Bomi Lim and Kyunghee Park report, that Kumho Asiana Group has agreed to sell a controlling stake in Daewoo E&C for KRW 2.9 trillion ($2.5 billion) to its main creditor Korea Development Bank (KDB).

The article states -

State-owned KDB will buy 50 percent plus one share from the South Korean conglomerate through a private-equity fund for KRW 18,000 a share, Kim Young Kee, vice chairman of KDB, said in Seoul Wednesday.

Daewoo E&C’s sale was delayed after Jabez Partners and TR America, the two preferred bidders, failed to show enough commitment to push the deal through, said Oh Nam-soo, Kumho Asiana’s president for strategic management.

“The delay in the Daewoo E&C  sale caused liquidity to worsen. Together with our creditors, we will carry out an aggressive restructuring of the whole group.”

“The sale and debt restructuring will give Kumho Asiana Group some time to sort out its liquidity problem,” said Choi In Ho, a fund manager at UBS Hana Asset Management Co. in Seoul

But Kumho isn’t out of the woods yet -

“A debt restructuring may mean the group will need to sell more assets.”, Choi added

Kumho Industrial Co. and Kumho Tire Co. units will seek debt restructuring from creditors, the group said in a statement today.

Korea Kumho Petrochemical Co. and Asiana Airlines Inc. will also discuss ways of improving their finances with creditors. The group’s net debt was KRW 2.21 trillion as of Sept. 30, according to Bloomberg data.

The back story -

Daewoo E&C was previously part of Daewoo Group, which collapsed during the 1997-1998 financial crisis under $80 billion of debt, the biggest corporate bankruptcy in South Korea’s history.

In 2000 it was spun off and  run by creditors before Kumho Asiana bought 72 percent for KRW 6.43 trillion in November of 2006. (Financial Times – Kumho to pay $6.84bn for Daewoo E&C)

Kumho Asiana, was forced to sell Daewoo E&C after the stock fell 40 percent since the 2006 takeover. That left the company facing a potential KRW 4 trillion payment to creditors who received shares as part of the acquisition and have the right to sell their stock back to Kumho at more than twice the current market price.

KDB Group CEO - Min Euoo-sung

The KDB originally served as one of the two arrangers for the sale, together with Tokyo-based Nomura Securities Co., when it was reported  -

“Selling Daewoo E&C to markets will come ahead of a plan that KDB buys it through a private equity fund,” Min Euoo-sung, KDB Group CEO

(Reuters – S.Korea KDB wants Daewoo Eng sale in auction)

However, the day after KDB selected Jabez Partners, who had sovereign fund Abu Dhabi Investment Council as its main investor, and a  TR America consortium that included New York-based builder, Tishman Construction, as preferred bidders, the bank announced they were stepping down from their role as main sale arranger.

“Considering various conditions including a controversy over interest conflicts, we decided to drop our role as a main arranger for the sale of Daewoo E&C after close consultations with Daewoo’s owner Kumho Asiana Group,” the KDB said in a statement at the time.

Saying that the bank said was seriously considering providing Daewoo’s buyer with financial support once a genuine, capable bidder was selected.

Then in early December, when the submission date for LOCs rolled around, as was reported here, the Jabez and TR America consortiums both asked for more time.

The final kibosh however, came on December 18th, when the KDB chairman told reporters -

“Although we expect the sale of Daewoo Engineering to go smoothly, KDB, as a main creditor bank, is mulling a ‘plan B’ to prepare for the possible failure of the sale,”

(Sources: Bloomberg, Reuters, Financial Times, Maeil Business News, Korea Herald)