Sale of Doosan Infracore stake could be opportunity for Hyundai Heavy
Ever since the Covid-19 outbreak earlier this year, Doosan Group has been busy trying to sell off assets to improve its financial structure.
Among the latest selloffs is Doosan Heavy Industries & Construction’s shares in Doosan Infracore, a leading construction heavy equipment maker in Korea.
The preliminary bidding took place on Sept. 28.
Hyundai Heavy Industries Group, private equity fund MBK Partners and investment company Glenwood Private Equity were among the bidders attempting to purchase the 36 percent stake Doosan Heavy holds in Doosan Infracore.
Doosan group could not confirm the date the final bidder would be selected, but market watchers project Hyundai Heavy to be one of the strongest candidates due to the synergy effect it could generate with its subsidiary Hyundai Construction Equipment.
The country’s No.2 construction equipment maker is 33.12 percent controlled by Hyundai Heavy Industries Group.
In early August, Hyundai Heavy Industries Holdings denied reports that it is considering a takeover of Doosan Infracore. But its stance changed after Doosan Group said that it will repay any additional debts of Doosan Infracore’s Chinese unit.
Currently, Doosan Infracore is in a legal battle with its financial investors.
In 2011, a group of financial investors, including Mirae Asset Global Investment Private Equity, acquired a 20 percent stake in Doosan Infracore China on the condition they retrieve the investment after the Chinese unit goes public within three years. Doosan Infracore China couldn’t go public, and the financial investors tried to sell their shares in the company without success. They filed a lawsuit against Doosan Infracore, saying that the company didn’t cooperate in efforts to sell the shares.
The investors are currently waiting for a Supreme Court decision. In the appeals trial, the court took the side of the financial investors. If the ruling isn’t overturned, Doosan Infracore could face up to 700 billion won ($598.44 million) worth of debt, which is the total amount of investment the investors injected plus the interest that has piled up over the years since the issue was taken to court.
But now that Doosan Group has promised to be responsible for the consequences of the legal battle, the value of Doosan Infracore has risen. The initial date for preliminary bidding was Sept. 22, but Credit Suisse, which arranged the deal, pushed the date to Sept. 28 after Doosan Group made the announcement due to a possible change in value.
The price of Doosan Heavy’s shares in Doosan Infracore is now estimated at between 800 billion won and a trillion won.
Hyundai Heavy Industry Holdings took part in the bidding in a consortium with KDB Investment, a subsidiary of the state-run Korean Development Bank.
The consortium is seen as a major candidate in the bidding due to the synergy effect that can be generated between Doosan Infracore and Hyundai Heavy Industry Holdings’ subsidiary Hyundai Construction Equipment.
Following the acquisition, Hyundai Heavy Industry Holdings is projected to become the world’s fifth largest construction equipment manufacturer. In 2018, Doosan Infracore’s global market share for construction equipment accounted for 3.7 percent, ranking ninth, while Hyundai Construction Equipment stood at 20th with 1.5 percent market share.
“Hyundai Construction Equipment will be able to generate a synergy effect through the acquisition because it can secure Doosan Infracore’s supply and distribution networks and share technologies,” said analyst Lee Dong-heon from Daishin Securities. “Securing the networks and technologies has become particularly important due to the intensified competition from competitors in the Chinese market.”
China is one of Doosan Infracore’s largest markets.
But the exclusion of Doosan Bobcat, another construction equipment maker under Doosan Group, from the acquisition deal could be seen as a factor that reduces the value of the deal.
Doosan Bobcat, which is 51.05 percent owned by Doosan Infracore, reported $52.44 million in operating profit in the first half of this year on $788.47 million in sales.
In the second quarter, Doosan Bobcat accounted for 48 percent of Doosan Infracore’s total sales, which stood at 1.98 trillion won.
Following the sales of Doosan Infracore shares, Doosan Group is likely able to raise 3 trillion won. Since the Covid-19 outbreak, its creditors — Korea Development Bank and the Export-Import Bank of Korea — have injected 3.6 trillion won into Doosan Heavy.
Doosan group is unloading other core assets, including Doosan Tower and Doosan Solus, an electronics parts maker.
BY JIN MIN-JI [firstname.lastname@example.org]
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