Skip to content
  • KOSPI 3001.80 +10.08 +0.34%
  • KOSDAQ 1006.04 +9.40 +0.94%
  • KOSPI200 397.27 +0.96 +0.24%
  • USD/KRW 1181.2 -2.50 -0.21%
  • JPY100/KRW 1,040.48 -2.75 -0.26%
  • EUR/KRW 1,331.15 -4.48 -0.34%
  • CNH/KRW 185.41 -0.32 -0.17%
View Market Snapshot

Builder stake sale

Daewoo E&C up for sale; in talks with local PEF over $1.58 bn deal

By Mar 11, 2021 (Gmt+09:00)

Daewoo E&C up for sale; in talks with local PEF over />.58 bn deal

Daewoo Engineering & Construction Co. is up for sale as its main creditor hopes to cash out of the South Korean builder on the back of its improving financial status and growth in new construction orders.

According to investment banking sources on Thursday, KDB Investment, the restructuring arm of the state-run Korea Development Bank, is in talks to sell its entire 50.75% stake in Daewoo E&C to a local private equity firm.

The controlling stake is seen valued at 1.8 trillion won ($1.58 billion) based on the builder’s current share price plus a 30% management premium, according to the sources.

Both sides hope to conclude sale talks and sign a deal by the end of 2021, they said.

The local PEF is known to be seeking to form a consortium with a construction firm as its strategic investor to increase its chances of reaching a deal.

Shares of Daewoo E&C soared on the stake sale news. In early Thursday trade in Seoul, the stock rose 10.6%, its biggest gain in more than two months, to 6,180 won, outperforming the benchmark Kopsi index’s 1.3% rise.

Daewoo E&C up for sale; in talks with local PEF over />.58 bn deal

THIRD TIME’S A CHARM

Daewoo E&C is up for sale for the third time.

The state-run KDB, the main creditor of Daewoo E&C, is attempting to unload its controlling stake in Daewoo E&C following an aborted attempt to sell it to Hoban Construction Co., a mid-sized Korean builder, in 2017.

The deal then fell through after Hoban, chosen as the top negotiator via an auction, walked away from the negotiations after finding contingent liabilities at Daewoo’s overseas operations.

Daewoo E&C, once Korea’s top construction company, was placed under a debt workout in 2002 following the collapse of its parent, the Daewoo Group, in 1999 amid the Asian financial crisis.

The builder was sold to the Kumho Asiana Group in 2006, but Kumho Asiana, reeling under its own financial squeeze, put it up for sale again three years later.

The policy bank acquired Daewoo E&C at 18,000 won a share in 2011. The bank has spent a total of 3.2 trillion won, including the price of the stake purchase and rights offering, on the builder to keep it afloat.

Daewoo E&C up for sale; in talks with local PEF over />.58 bn deal

HIGHER CHANCE OF STAKE SALE

Industry officials said the chances for a successful sale of the builder have increased given its improving earnings boosted by growth in new construction orders.

KDB Chairman Lee Dong-gull has said the main creditor will dispose of its stake in Daewoo to recoup taxpayers’ money as soon as the right time arises. 

During a parliamentary audit of the KDB in 2020, Lee said the bank would quickly resume the sale process after enhancing the builder’s enterprise value.

Daewoo E&C received construction orders worth 13.9 trillion won last year, higher than its goal of 12.8 trillion won, as the company won high-stakes deals from Nigeria, Iraq and Mozambique.

Boosted by the decent orders, its 2020 operating profit surged 53% from the previous year to 558.3 billion won on revenue of 8.14 trillion won. In the fourth quarter of 2020, the company delivered an earnings surprise with an operating profit of 253.3 billion won, beating its two bigger rivals. Local industry leader Samsung C&T Corp. posted 135 billion won in operating profit in the fourth quarter, while the second-largest builder Hyundai Engineering & Construction Co. ran an operating profit of 89.9 billion won.

Analysts say KDB Investment is in talks with the prospective buyer to sell Daewoo E&C at around 8,500 won per share, but the buyer may be tempted to lower the price tag given the builder’s current share price.

Write to Chae-Yeon Kim at Why29@hankyung.com

In-Soo Nam edited this article.

Comment 0

0/300