Creditors pick Kumho-Asiana as preferred bidder for Daewoo Engineering

Kumho-Asiana Group, a midsize family-run industrial conglomerate, was chosen as the preferred bidder for a controlling stake in Daewoo Engineering & Construction Co., the construction company's main creditor Korea Asset Management Corp. (KAMCO) said Thursday.

Kumho-Asiana is believed to have offered to purchase a 72.1

percent stake in Daewoo Engineering, the nation's second-largest construction company by market value, for about 6.6 trillion won (US$6.8 billion), or 27,000 won per share.

Shares in Daewoo Engineering closed at 13,300 won Thursday, up 0.76 percent from the previous day.

KAMCO didn't disclose the specifics of Kumho-Asiana's bid, citing confidentiality.

Prime Group, a real estate developer, was also selected as a preliminary bidder for the construction company, KAMCO said. "Kumho-Asiana was picked as the winning bidder as it received the highest scores in three categories among the five bidders," Kim Dae-jin, a KAMCO director, said.

He dismissed allegations that the government had given preferential treatment to Kumho-Asiana in winning the bid. "Every effort has been made to make the bidding process fair and transparent."

The three other bidders were Eugene, a cement company, and Samwhan, a construction company, and Doosan Group.

KAMCO said it plans to conclude the sale of Daewoo Engineering by September this year after signing memorandum of understanding with Kumho-Asiana and about allowing the group to conduct a one-month due diligence.

Daewoo was spun off from the now-defunct Daewoo Group in 2000, which collapsed in 1999 under $80 billion in debts, the biggest corporate failure in the nation's history.

Creditors of Daewoo Engineering plan to sell a stake of as much as 72.1 percent in the construction company, initially valued as high as 5 trillion won with a premium. Last year, Daewoo Engineering posted a net profit of 406.7

billion won on sales of 5.07 trillion won.

As of the end of March, Daewoo Engineering had an order backlog worth 19.5 trillion won that is expected to keep the company busy for the next four years, according to industry sources.

Kumho-Asiana said it will not try to merge Daewoo Engineering with Kumho Industrial Co., its construction unit.

"The two companies will be run as separate entities and we will retain Daewoo Engineering's workforce," a group official said on condition of anonymity.

Industry sources said the purchase of Daewoo Engineering would rank Kumho-Asiana among the nation's 10 largest family-run conglomerates.

As of April, Kumho-Asiana was the 11th-largest conglomerate with assets of 12.9 trillion won, but it is likely to rank as the eighth-largest once it takes over Daewoo Engineering which has assets of 5.9 trillion won, they said.

Market watchers said Kumho-Asiana may face a bumpy road for its purchase of Daewoo Engineering as the builder's labor union is strongly opposed to the deal.

Analysts said the group may have difficulty in financing the takeover since it is believed to have offered a bid twice the market value of Daewoo Engineering, which will make it hard to attract financial investors.

"Kumho-Asiana will be able to raise up to 2 trillion won on its own, but it has to rely on financial investors or loans for the remainder," said Cho Yun-ho, an analyst at Daishin Securities.

If Kumho-Asiana has to borrow the 4 trillion won, its borrowing cost, including Daewoo Engineering's debts, would reach 400 billion won a year, which almost equals the builder's net profit, he said. Seoul, June 22 (Yonhap News)