3 Foreign Funds Eye Daewoo E&C

Three foreign funds have expressed intent to acquire Daewoo Engineering&Construction, Kumho Asiana Group said Wednesday.

With no domestic company or investor showing interest in the nation's third largest builder, Daewoo will have a new foreign owner in early 2010, three years after being acquired by Kumho. With the sale of its construction unit, Korea's ninth largest conglomerate will be able to significantly improve its liquidity problems.

``Three Korean and non-Korean investors submitted a letter of intent (LOI) to buy a controlling stake in Daewoo Wednesday. In cooperation with two co-underwriters ― Korea Development Bank and Nomura Securities ― we will study each LOI and announce a preferred bidder next week,'' Kumho Asiana said in a statement. Originally, the deadline for final bidding was Nov. 11 but sales managers postponed the date by a week at the request of potential bidders.

Kumho did not reveal the names of final bidders but according to industry sources familiar with the matter, only three foreign investors made an offer to take over the builder.

They are Middle East-based Jabez Partners led by the Abu Dhabi Investment Authority (ADIA), U.S. property developer AC Development Group and a consortium of Russian companies. ADIA is a sovereign wealth fund owned by Abu Dhabi, the United Arab Emirates, with $800 billion under management. The fund is reportedly attracted to Daewoo, as the builder grew through large-sized construction projects in the oil-rich region during the 1970s and '80s

Among four entities who were short-listed as candidates for preferred bidder in early October, S&C International Group, which is based in Saudi Arabia, did not submit a final bid. Additionally, one or two European investors who were considering taking part in the final auction did not make an offer.

According to the sources, Jabez Partners and AC Development are closely vying for Daewoo and all final bidders are financial investors, not strategic investors, meaning that regardless of who takes over Daewoo, Kumho Asiana may continue to operate the construction firm on behalf of a controlling stake owner.

The three investors are reportedly willing to buy shares of the firm at between 20,000 won and 24,000 won a share. Daewoo stocks have been traded at around 13,000 to 14,000 won over the past month. If Kumho Asiana Group sells a 50 percent-plus-1 share at 20,000 won per share, it would receive close to 3.3 trillion won.

With hundreds of billions of won generated from sales of Kumho Life Insurance and other group assets, the business group will likely be able to resolve the put option deal it signed with Kookmin Bank and 17 other financial services firms in 2006.

At the time, Kumho promised to buy back the builder's shares on Dec. 15, 2009 in the case they want to sell their holdings at the pre-set price of 31,500 won per share in return for a 3-trillion-won investment, expecting that the stock prices would hover well above the mark. The group spent 6.5 trillion won to take over a 72.1-percent stake in Daewoo.

However, the buy-back option proved to be a disaster as Daewoo shares plummeted to below 15,000 won in the aftermath of the global credit crunch late last year.

Against such a backdrop, the group has been making all-out efforts to secure liquidity through the sale of assets owned by its business units.

The construction and logistics-based conglomerate has been plagued by rumors that it is facing a liquidity crunch, as it has had to pay back loans and other financial obligations accumulated over the past few years after acquiring Daewoo Engineering&Construction and Korea Express.