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Doosan Infracore's excavator / Courtesy of Doosan Infracore |
By Baek Byung-yeul
Attention is growing over lawsuits involving Doosan Infracore's Chinese subsidiary Doosan Infracore China Co. (DICC) as the legal battle between the construction equipment's Chinese unit and its investors will begin at the Supreme Court, Jan. 14.
The court ruling is expected to decide the fate of Doosan Group's corporate restructuring plan as the group's construction arm Doosan Heavy Industries & Construction put its stake in Doosan Infracore up for sale as part of its self-rescue effort. Doosan Heavy Industries & Construction is the largest shareholder of Doosan Infracore, owning a 35.4 percent stake.
The lawsuit could also affect the on-going acquisition deal in which Doosan Infracore has tried to sell itself to a consortium led by Hyundai Heavy Industries Holdings. In December, the consortium was chosen as a preferred bidder for the sale of a 35.4 percent stake in Doosan Infracore held by its mother company Doosan Heavy.
The cash-strapped Doosan Group has been seeking to sell its shares and assets to improve its financial health and repay debts held by the group's flagship affiliate Doosan Heavy. The conglomerate received a 3.6 trillion won bailout from state-run banks.
DICC has been in legal tussles with a number of investors such as Mirae Asset Private Equity, IMM PE and Hana Financial Investment PE. Those investors have the right to force Doosan Infracore to join them and sell up to 80 percent of the DICC stake because DICC failed to launch an initial public offering (IPO) within three years of their investment in 2011.
As the IPO plan of DICC experienced insufficient funding, the investors filed lawsuits worth at least 709 billion won against Doosan Infracore with a local court in 2015. They claimed Doosan Infracore should be accountable for the failure of the IPO because the construction equipment maker did not share relevant data.
It remains to be seen whether Doosan can clear the litigation risk by winning the lawsuit. Otherwise, Doosan Group needs to take care of all contingent liabilities related to DICC. Given the interest and legal fees, the contingent liabilities are expected to be around 1 trillion won.