GS Energy, the holding company of GS Group’s energy businesses, is facing delays and structural hurdles in selling its majority stakes in its two city gas affiliates in South Korea, according to industry sources Tuesday.

Since officially putting its 49 percent stake held in each of its two gas-providing affiliates, Haeyang City Gas and Seorabeol City Gas, on the market last month, GS has halted further procedures on the deal.

“All proceedings have been put on hold, and no future agendas regarding the sellfoff have been confirmed,” an official from Samil PwC, in charge of the stakes sale, was quoted as saying.



Though a month has passed since the two GS Energy affiliates went up for sale on Dec. 10, 2015, no company has been short-listed for the deal, according to the accounting firm, signaling procedural delays.

GS Energy cited the company’s executive reshuffle that took place last month – former GS E&R CEO Ha Young-bong was appointed as CEO of GS Energy -- as the main, temporary reason for the delay.

Despite the leadership change, both the company and investment banking officials do not expect GS Energy’s sale plan to undergo major changes, though the process will take longer.

A major factor influencing the deal’s outcome are the buyers themselves. The financial investors which have expressed initial interest in the sale, including KB Asset management, KDB Kiamco and Macquarie Korea Opportunities Fund, are reportedly facing difficulties in finding strategic investors to join their bid.

Purchasing GS Energy’s stakes in the two city gas affiliates is expected to bring back about 5 percent in terms of return on investment, which is considered low by strategic buyers in a situation when GS Energy cannot guarantee future profits, according to industry estimates.

GS Energy’s two city gas affiliates have been posting steady profits annually, despite a general economic downturn and volatile market conditions faced by many industries.

In 2014, Haeyang City Gas racked up 666 billion won ($552.6 million) in revenue and 18.9 billion won in operating profits, while Seorabeol City Gas posted 171.7 billion won in revenue and 9.6 billion won in operating profits, according to the firms’ regulatory filings.

By Sohn Ji-young (jys@heraldcorp.com)