Sale of Hanbo Steel Faces Obstacle

The Nabors consortium of the United States signed a contract in March to take over Hanbo Steel, but has failed to pay the required 500 billion won ($480 million) by the Saturday deadline. It is rather worrying that the sale may not go through at this juncture. The creditor banks, including the Korea Asset Management Corporation, have reportedly decided that the best way to urge Nabors to execute the contract is to bide their time for another a month. Since this breach of contract has come on the heels of Ford＇s withdrawal from the Daewoo Motor bid, we feel as if we have once again been ＂trifled with,＂ to use President Kim Dae-jung＇s expression.

Negotiations can break down. Even after a contract has been signed, it can be breached if the buyer changes his mind. The key question is whether the seller has prepared a safety device to minimize the losses arising from the buyer＇s change of heart. As far as this question is concerned, Korean creditors have no excuse. When they signed a contract with Nabors in March, the creditors did not require any down payment or institute penalties to be imposed if the buyer broke the contract. What did the creditors have in mind when they signed such a contract? In the sale of Daewoo Motor, Ford was a preferred negotiation partner, and therefore it could be said that receiving a down payment or instituting penalties was out of the question. However, the Hanbo case was different because it constituted the signing of an actual contract.

It is understandable that the creditors were in a relatively weak position compared to the buyer because at the time of last year＇s bid, Nabors was the only bidder. Even so, upon signing a contract, the creditors should have done their best to secure more advantageous conditions. It is a principle of such negotiations that the parties should try to think of contingencies before signing a contract.

Now that the water has been spilled, the creditors have no choice but to clear up the mess as best they can. Rather than awaiting Nabors＇ response indefinitely, they must prepare to sue Nabors for damages, and at the same time they are advised to look for new buyers, be it in the form of a private contract or a new round of bidding. Such actions will be a way to bring some pressure to bear on Nabors, too. Most importantly, we should not repeat the mistake of shutting the stable door after the horse has bolted.

by Kwon Young-bin