Daewoo E&C shares rise on reports of merger talks

SkyLake Investment expected to bid for Daewoo E&C's acquisition

By Anna J. Park

Daewoo Engineering & Construction shares closed up over 5 percent Tuesday on news that the builder is again up for sale.

Daewoo E&C finished at 7,210 won ($6.48), up 5.1 percent from the previous session. Foreign as well as institutional investors were behind the buying spree, as retail investors were net sellers. The stock price touched a 52-week high of 7,250 won briefly at around noon. But the stock edged down to finish at 7,210 won. With the price surge, the market cap of the construction company founded back in 1973 rose to 2.99 trillion won.

The builder's share has been on a downtrend over the past decade, despite fluctuations, since peaking at 30,200 won in 2007. The price nosedived to below 10,000 won in 2008 due to liquidity problems during the global financial crisis and a recession in the construction sector.

Local construction shares have finally begun to display bullish performances amid an upswing of the economic cycle with both growth and inflation accelerating. KDB Investment ― the largest shareholder of Daewoo E&C with a 50.75 percent stake ― currently aims to sell its stake in the builder, because it views this to be the right timing to receive an appropriate valuation for the construction firm. KDB Investment acquired its stake in July 2019 and has been working with the firm to raise its competitiveness and corporate value.

According to the investment banking industry, KDB Investment is in talks with a few potential bidders over the sale of a major stake in Daewoo E&C as well as management rights.

While there are few other bidders, SkyLake Investment, a local private equity firm founded and led by former Samsung-executive-turned-politician Chin Dae-je, is said to be forming a consortium with local real estate developer DS NETWORKS to take over the stake, which is estimated at about 2 trillion won.

It remains to be seen if the construction company will be sold this time. It is already the third time that the builder has been put up for sale, but it has yet to find a new owner.

Following the dissolution of the Daewoo conglomerate in 1999, Daewoo E&C was acquired by Kumho Asiana Group in 2006. But due to financial problems, Kumho Asiana sold the firm in 2009. Since then, KDB took over a major stake in 2011. In 2018, the state-run bank designated Hoban Construction as a preferred bidder for the firm's sale, but the acquisition was scrapped.