BUSINESS

‘Price not all in Hyundai E&C bid’

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  • Published : Oct 11, 2010 - 18:16
  • Updated : Oct 11, 2010 - 18:16
The bidders for Hyundai Engineering and Construction will be assessed fairly and neither side is currently at an advantage, Korea Finance Corp. president Ryu Jae-han said on Friday.

Holding 11.12 percent of Hyundai E&C’s shares, Korea Finance Corp. is the builder’s largest shareholder.

Speaking in Washington, Ryu said that neither Hyundai Motor Group, nor Hyundai Group has a clear advantage and that factors other than the bid price will come in to play in selecting the acquirer.

“The price will have a higher weighting, but the decision will be made through a comprehensive assessment including factors such as the ability to raise funds and management vision,” Ryu said.

Citing the case of Daewoo Engineering and Construction, Ryu emphasized that factors other than the bid amount will carry significant weight in making the decision. In 2006, Kumho Asiana Group acquired Daewoo E&C at more than 6 trillion won ($5.4 billion), but the conglomerate was thrown into disarray by liquidity problems arising in part from the deal.

“At this point, neither Hyundai Group nor Hyundai Motor Group can be seen to be at an advantage. The new owner of Hyundai E&C will be selected through fair assessment.”

Hyundai Group is led by Hyun Jeong-eun, the widow of Hyundai Group founder Chung Ju-young’s third son Chung Mong-hun, while Hyundai Motor Group is headed by Chung Mong-koo, the late elder Chung’s eldest surviving son.

The two conglomerates are in a two-way race to acquire Hyundai E&C, the country’s largest construction company that recorded revenues of nearly 9.3 trillion won and operating profits of 418.9 billion won last year. The builder is also considered to be the foundation of Chung Ju-young’s Hyundai Group, from which the current Hyundai Group and the auto giant were spun off.

The successful bidder will acquire 34.88 percent or a little less than 39 million shares, with prices expected to come in at between 3.5 trillion won to 4 trillion won.

In terms of scale and ability to raise funds, Hyundai Group is far from an even match for Hyundai Motor Group.

In April, Hyundai Motor Group’s assets were valued to be about 100.7 trillion won by the Fair Trade Commission, making it South Korea’s second largest conglomerate.

In comparison, the assets of Hyun’s Hyundai Group came in at about 12.4 trillion won.

Hyundai Motor Group is also at a clear advantage in terms of liquid assets. The carmaker is thought to have had about 4 trillion won as of March. In comparison, Hyundai Group is said to have secured about 1.5 trillion won from in-house sources.

Concerning Hyundai Group’s advertising campaign that appeals to public sentiment, Ryu said that he was “perplexed” and that Hyundai E&C’s creditors will stick to principles in making the sale.

“I understand (the advertisements) as part of Hyundai Group’s strategy, but I think the act of appealing to public sentiment could become a burden for the deal,” Ryu said.

“The Korea Finance Corp. and other creditors will be faithful to the principle of getting a high price while making a good sale.”

Hyundai Group has aired a series of television commercials arguing its legitimacy over Hyundai E&C, and took out front-page adverts in more than 20 dailies implying that Hyundai Motor Group should concentrate on the automotive industry.

Concerning the sale of Hynix Semiconductor, of which the Korea Finance Corp. holds 2.6 percent, Ryu said that if the sale is not concluded by the end of the year, the creditors will have to look for alternatives.

As for the plans to privatize Korea Development Bank, Ryu said that he estimates the bank to be worth at least 20 trillion won, twice as high as the market estimation of 10 trillion won.

By Choi He-suk  (cheesuk@heraldcorp.com)