No suitors for stake in KAI except Korean Air
Korea Aerospace Industries shareholders only drew interest from Korean Air as they seek to sell a 1.1 trillion won ($970 million) stake, threatening to derail the process.
The shareholders extended a registration deadline from Thursday until Aug. 31 as they seek another potential bidder, said an official at the state-run Korea Finance Corporation, who declined to be identified citing company policy. They will decide whether to proceed after that, he said. At least two bids are needed because of rules governing sales by government entities.
Concerns about the impact of a looming presidential election in December may have deterred bidders even as North Korea’s militarization and rising defense spending in emerging markets spur demand for Korea Aerospace’s helicopters and T-50 trainer jets, said Justin Lee, a Seoul-based analyst at Nomura Holdings. The government last month didn’t get any bids for a stake in Woori Finance Holdings, the country’s biggest financial services group by assets.
“Extending the deadline won’t change the picture,” Lee said. “The political situation will continue to be a burden for the deal.”
About 1,600 workers also protested the sale outside Korea Finance’s offices today in Seoul, according to the plane maker’s biggest union.
Korean Air said it had registered its interest as it attempts to expand its aerospace business. The company, which already makes parts for Airbus SAS and Boeing, didn’t say how much it would offer for the Korea Aerospace stake. The sale is being managed by Korea Development Bank and Credit Suisse.
Bidders still have until Aug. 31 to make formal offers, Korea Finance said. The company is offering part of its 26 percent stake in Korea Aerospace in the sale. It plans to remain the second-biggest shareholder. Hyundai Motor, Samsung Techwin and Doosan Group are each looking to offload 10 percent holdings. The aircraft maker has a market value of $2.37 billion, according to data compiled by Bloomberg.
Lawmakers have objected to the sale because of concerns about transparency. Korea Finance is acting “hastily,” and placing the company under private control may weaken public accountability, Chyung Ho-joon of the Democratic United Party said during a July 30 meeting of the National Policy Committee, a parliamentary body that oversees Korea Finance and other agencies.
Kim Jung-hoon of the ruling Saenuri Party also said at the same meeting that the current administration shouldn’t rush the sale. His colleague Park Geun-hye is leading opinion polls ahead of the December election. President Lee Myung Bak will end his five-year term in February.
Korean Air has previously been unsuccessful in trying to buy a stake in Korea Aerospace. The company abandoned a three-year-long attempt to gain control of the plane maker in 2006 because of a lack of progress. The airline generates 3.3 percent of revenue by making plane parts.
Korea Aerospace has a limited pool of potential bidders because national-security rules mandate that it remains under local ownership. The Korean military accounted for 57 percent of the company’s 1.29 trillion won sales last year.
The company also requires continued investment in order to churn out new high-technology products, which may dampen interest, Lee said.
“Even without considering a potential political backlash, I don’t know there would have been enough interest,” he said. “Whoever ends up buying the company will have to be able to meet continuous capital-expenditure needs.”
Korea Aerospace plans to spend 245.4 billion won this year, including constructing a new plant that will make wing components for Airbus A320 planes under a record $1.2 billion deal signed in March. The company also supplies Boeing.