Hoban drops bid for troubled Daewoo E&C

Home > Business > Industry

print dictionary print

Hoban drops bid for troubled Daewoo E&C

Hoban Construction walked away from a 1.6 trillion won ($1.5 billion) bid for Daewoo E&C on Thursday, throwing the fate of Korea’s third-largest builder into uncertainty.

Daewoo E&C, which is owned by creditors, said Hoban, the preferred bidder, had pulled out of the deal, citing concerns about Daewoo’s losses.

“The acquisition process has been put on hold after a preferred bidder expressed its decision to withdraw,” Daewoo said in an electronic disclosure.

The major reasons behind Hoban’s withdrawal: Daewoo’s massive losses overseas and poor earnings in the fourth quarter. Hoban, a midsize builder ranked 13th in the country, said the deficit was beyond what it could take.

“We took the unexpected losses and other recent problems seriously and questioned whether we could take on the risks associated with them,” a Hoban representative said. “Unfortunately, we decided not to proceed with the deal.”

Daewoo’s losses mostly came from defective materials that were supposed to be used in a power plant project near Safi, Morocco. Dumping the materials incurred a loss of 308.4 billion won.

The cost contributed to a fourth-quarter loss of 143.2 billion won, far below market expectations.

Both Daewoo and Korea Development Bank, Daewoo’s main creditor, remained mum about the overseas deficit until the fourth-quarter report was released Wednesday.

Daewoo’s bungling of the Morocco project particularly weighed on the deal because Hoban was particularly keen about entering foreign markets.

Kim Sang-yeol, founder and chairman of Hoban, expressed high hopes for Daewoo’s prowess in projects outside the country in an interview after its preferred bidder status was announced on Feb. 1.

Since the midsize builder has little experience overseas, the loss is especially risky. “We can barely expect what kind of other risks might come along,” a source at Hoban said.

During preliminary due diligence, Hoban only took into account Daewoo’s financial statements up until the third quarter.

After Hoban aborted the deal, Daewoo E&C’s share price plunged 8.8 percent on Thursday to 5,180 won, a 52-week low.

Under the initial deal, Hoban would have bought a 40 percent stake in Daewoo and acquired the remaining 10.75 percent stake two years later.

Instead, Korea Development Bank will continue to be the majority holder of Daewoo E&C.

The bank bought the company from Kumho Asiana Group in 2010 to help the debt-ridden builder restructure its finances.

Kumho Asiana Group failed to see any profit from Daewoo E&C after purchasing it in 2006, instead suffering a liquidity crunch.

BY PARK EUN-JEE, KIM TAE-YOON [park.eunjee@joongang.co.kr]
Log in to Twitter or Facebook account to connect
with the Korea JoongAng Daily
help-image Social comment?
lock icon

To write comments, please log in to one of the accounts.

Standards Board Policy (0/250자)