Stock price of Daewoo E&C key issue for Kumho Asiana Group

Kumho Asiana Group`s decision to sell Daewoo Engineering and Construction, the country`s largest builder, is meant to overcome the liquidity shortage the group has suffered from recently.

Watchers said that the group will first try to sell Daewoo E&C through an open auction, But if it fails to sell stakes due to the current sluggish market condition it may have to hand over the remaining stake to a private equity fund to be set up by its sole and main creditor Korea Development Bank, they said.

"In our view, the group will likely use an open auction, because open auction should offer better condition for the sale," Cho Joo-hyung, analyst of Hana Daetoo Securities, said.

"The market focus is on how much the group can sell its stake of Daewoo E&C to whom. The price of stock is another big issue," Park Hyung-ryeol, analyst of Financial Investment and Securities, said.



Analysts have suggested three possible scenarios for the Daewoo sale: The first one is selling 39 percent of the stake of financial investors and the managerial rights of the group and selling 50 percent of the stake and one share, a typical M&A method.

The group also may sell 72 percent of the stakes owned both by the group and financial investors together. Kumho Asiana owns about 33 percent of the builder and financial investors hold another 39 percent.

The third option will help the company to secure up to 3.13 trillion won based on the market value of the builder, the analysts said.

"Kumho Asiana has to sell the builder at the highest price. Even many scenarios have been suggested, selling 72 percent of share together seems to be best option for the group," Han Gang-soo, analyst of Hanwha Securities, was quoted as telling The Herald Business newspaper.

"If it fails to do so, there is the possibility of the group putting Korea Express up for sale as well," he added.

Kumho Asiana, the nation`s seventh-largest conglomerate, has been struggling to raise cash through asset sales and draw new investment funds to honor a put-back option agreement it signed with financial investors in the 6.4 trillion-won takeover of Daewoo E&C in 2006.

The group may have to spend as much as 4 trillion won, if and when the option which entitles investors to sell Daewoo shares at a pre-set price of 32,000 won per share is exercised. Stock price of Daewoo E&C surged 7 percent to 13,750 won yesterday.

The group had previously agreed with its main creditor KDB that it would hand over control of Daewoo E&C to a private equity fund to be set up by the state-run lender, should it fail to resolve the issue by the end of July.

"Kumho Asiana selling Daewoo E&C is the most effective decision for the group," said Samsung Securities analyst Heu Moon-wook. "(If the group resisted selling the builder) its finances will be seriously weakened with a big portion of its liquid assets transferred to option-holders."

Market sources have pointed to LG group, Lotte Group and POSCO as possible acquirers in the Daewoo deal. But the companies remained calm over Daewoo E&C being relisted in the market. Companies are not going to jump into an M&A war due to the country`s sluggish property market and lack of investment funds in times of economic recession.

(christory@heraldm.com)

By Cho Chung-un