Mid-sized Jungheung to buy Daewoo E&C as part of global expansion plan

South Korea’s construction firm Jungheung Construction Co., in a move to strengthen its global foothold, is buying its much larger-sized rival Daewoo Engineering & Construction Co. (Daewoo E&C).

According to the investment banking industry on June 30, Jungheung was selected as the preferred bidder to acquire 50.75% of Daewoo E&C shares owned by KDB Investment under the state-run Korea Development Bank (KDB). Bank of America Merrill Lynch is managing the sellout.

Sources report that the acquisition price stands at around 2.2 trillion won ($1.9 billion), about 600 billion won ($621 million) higher than the bidding price of 1.6 trillion won ($1.4 billion) submitted by Hoban Construction Co. to KDB Investment in 2017.

Market watchers say that KDB Investment could raise its asking price significantly in just four years largely due to Daewoo E&C’s strong performance last year. Daewoo E&C posted an operating profit of 558.3 billion won ($495 million) on revenue of 8.1 trillion won ($7.2 billion).

Sources say that Jungheung and KDB Investment will be signing a memorandum of understanding (MOU) on the deal next week at the earliest. In signing the MOU, Jungheung must pay a non-refundable deposit of 50 billion won ($44 million).

Since Daewoo Group’s dissolution in 1999, Jungheung will become the third owner of Daewoo E&C, which was first acquired by Kumho Asiana Group at 6.4 trillion won ($5.7 billion) in 2006. KDB bought Daewoo E&C from Kumho Asiana in 2011.

Jungheung said it will be conducting due diligence over a month’s period before signing a formal contract.

ABOUT JUNGHEUNG CONSTRUCTION

Jungheung Group’s Jungheung Construction and another affiliate Jungheung Civil Engineering & Construction respectively rank 35th and 15th in terms of the construction ability evaluation (CAE) done by the Construction Association of Korea annually. The group affiliates’ rankings fall far behind that of Daewoo E&C, ranked at 6th.

After the acquisition, Jungheung Group will become one of the country’s top 10 major construction companies, which include global big-names such as Samsung C&T Corporation and Hyundai Engineering & Construction.  

Jungheung Group is currently South Korea’s 47th-largest conglomerate with 9.2 trillion ($8.1 billion) worth of assets. The acquisition will allow the group to rise up the ranks to 20th with a total asset of 19.5 trillion won ($17.2 billion).

Jungheung Group is also the largest shareholder of Herald Corp., which runs The Korea Herald, an English-language daily newspaper, and its Korean-language sister paper Herald Business.  

Sources say that Jungheung Group Chairman Jung Chang-sun himself has led the acquisition. He previously shared his global ambition in January 2020 at a media roundtable: “Within the next three years, we will be acquiring a construction firm sized larger than 1 trillion won ($886 million) that has a successful global track record.”

KB Securities Co. will provide Jungheung 1 trillion won ($886 million) in acquisition financing, while Mirae Asset Securities Co. is Jungheung’s acquisition manager.

DAEWOO E&C’S GLOBAL TRACK RECORD

Korea’s construction industry analysts highlight that the acquisition will allow Jungheung to go ahead with its ambition to become a global firm by building on Daewoo E&C’s long track record in the global market.

Daewoo E&C has achieved its overseas sales target last year, procuring 5.71 trillion won ($5.1 billion) worth of new orders compared to its annual target of 5.07 trillion won ($4.5 billion).

The company’s major overseas achievements last year include a $388 million Star Lake City urban development in Hanoi, Vietnam, as well as liquefied natural gas (LNG) plant projects in Nigeria and Mozambique.

Daewoo E&C is maintaining a strong presence in the global scene into 2021 as well. Last month, the company landed a $2.6 billion port construction project in Iraq.

Write to Chae-yeon Kim at why29@hankyung.com
Daniel Cho edited this article.