Three groups bid for Daewoo E&C

After months of financial struggles, Kumho Asiana Group appears close to securing some much-needed cash through a restructuring.

On Wednesday, the nation’s 13th-largest conglomerate said in a press release that three foreign funds have submitted separate bids to acquire Kumho’s stake in ailing subsidiary Daewoo Engineering and Construction, which the company purchased in 2006 for more than 6 trillion won ($5.2 billion). At the time, 18 local firms helped Kumho buy a 39 percent stake in Daewoo E&C.

As part of that put option deal, the company promised to raise the value of the Daewoo shares from 12,850 won each to 31,500 won apiece by the end of 2009. If the shares failed to reach that amount, however, Kumho agreed to pay the investors the difference.

As of yesterday, Daewoo E&C shares traded at 14,200 won - far short of the amount stipulated in the agreement. That means Kumho Asiana owes the investors roughly 4 trillion won in the coming weeks. As a result, the company must secure cash by restructuring and selling stakes in its businesses, including Daewoo E&C itself.

“We will thoroughly go over each letter of intent and announce publicly a preferred bidder sometime next week,” Kumho Asiana said in a statement yesterday.

Though neither Kumho Asiana nor its co-underwriters - Korea Development Bank and Nomura Securities - revealed the names of the bidders, industry sources listed several possibilities including Abu Dhabi Investment Authority, Jabez Partners, AC Development Group and a consortium of Russian companies.

Industry experts say the companies that have submitted bids are reportedly offering to buy the shares for between 20,000 won and 24,000 won each, which would secure Kumho Asiana around 3.2 trillion won. The company can get the rest of the cash it owes by using money from its recent sale of Kumho Life Insurance and Seoul Express Bus Terminal shares, which netted it a combined 670.5 billion won.

Despite Kumho Asiana’s efforts to stabilize its financial structure, some observers say such a strategy is risky from a long-term perspective. Industry experts say foreign firms typically acquire companies for financial short-term investment rather than strategic long-term gains. Yesterday, Daewoo E&C’s labor union called on Kumho Asiana to avoid a hasty decision in selling its stake, saying it will strike if that happens.

By Lee Eun-joo [angie@joongang.co.kr]