Korea’s only shipyard under creditor protection to be sold this year

A sale of Daehan Shipbuilding Co., South Korea’s only shipbuilder under creditor protection, is to be completed within this year through a stalking-horse bid method, competitive bidding after a provisional deal.

A stalking-horse bid is an initial bid on the assets of a bankrupt company. The bankrupt company will choose an entity from a pool of bidders who will make the first bid on the firm's remaining assets. The stalking horse sets the low-end bidding bar so that other bidders cannot underbid the purchase price.

Daehan’s creditors plan to receive a letter of intent (LOI) from potential investors in early August and select a stalking-horse bidder in middle of the month. The stalking-horse bidder will perform due diligence and sign a provisional contract by end-September at the earliest. The creditors aim to complete the sale within this year after an open bidding following the provisional deal.

Five to six strategic investors are scheduled to submit their LOI for Daehan, according to the investment banking (IB) industry sources on July 29. Three of them – one each from shipbuilding, shipping and  construction industries – are known to be revising the letter to meet prices hoped by creditors.

“It is likely to be sold for more than 200 billion won ($173.9 million) to repay Daehan’s existing debts and secure its management right,” said a source in the local M&A market.

LONG-TERM BUSINESS PLANS

To select a new owner, creditors are expected to consider business plans for Daehan’s long-term growth and necessary funds for the acquisition.

Some of investors were known to look for Daehan’s undeveloped land only, but the creditors want sell the shipbuilder as a whole.

“Many companies are interested in Daehan Shipbuilding’s land in its industrial complex. But they (the creditors) will sell not some parts but the whole of the company, as far as I know,” said an IB industry source. “What is important in the deal is future plans and determination for its core shipbuilding business.”

Daehan, which has the world’s largest share in the Aframax tanker market, is based in Haenam in South Jeolla Province. Daehan, once a Daejoo Group’s affiliate, entered a debt workout program during a restructuring of the shipbuilding and construction sectors in 2009. Since then, creditors including the state-run Korea Development Bank (KDB) have been attempting to sell the shipyard but could not find a buyer. So, Daewoo Shipbuilding & Marine Engineering Co. has been entrusted with the operation of Daehan since July 2011.

Daehan, which has been steadily winning ship orders, turned to black last year despite the COVID-19. The company reported an operating profit of 11.7 billion won in 2020, swinging from a loss of 9.2 billion won in the previous year, and its revenue grew 17.9% to 723 billion won. It also has 2.3 million square meters (24.9 million square feet) of land with licenses to construct industrial complexes.

Write to Ji-Hye Min at spop@hankyung.com
Jongwoo Cheon edited this article.