By Jung Sung-ki
When it comes to potential M&A in the Korean defense sector, here is the starting point: a stake sale of Korea Aerospace Industries (KAI), the country’s only aircraft developer, which built the T-50 supersonic trainer jet.
In the wake of a series of defeats in trainer jet contests in the United Arab Emirates and Singapore, moves to privatize the company appear to be gaining strength.
In January, the Korea Finance Corp. (KoFC), which owns the government’s 30.1 percent stake in KAI, unveiled plans to jointly sell its stake in the aircraft manufacturer, which was created in 1999 through the merger of the aerospace divisions of the nation’s top three major conglomerates ― Samsung, Daewoo and Hyundai.
Doosan Group later bought Daewoo’s stakes. Now Samsung Techwin, Hyundai Motor and Doosan Infracore hold about 20.5 percent each, respectively.
Before the potential stake sale, the company is scheduled to proceed with an initial public offering (IPO) in June, which industry analysts believe could serve as a stepping stone to privatize the firm.
“Under the principle of selling their stakes, the shareholders are reviewing various options now,” a KoFC official said. “Once a reasonable price is set after the IPO, the shareholders will make a decision as to whom they will sell their stakes and how many shares will be sold.”
“Potential buyers will not move at least until the IPO in June. The question is who’ll take the bullet. In my understanding, the Samsung leadership is not interested in snapping up more shares in KAI,” he said.
The shareholders agreed in principle that they would sell a combined 50 percent plus one share in order to help a new buyer hold management rights, the official said.
The government would keep some shares, however, given that the company is involved in key military projects related to national security, he added.
It still remains to be seen whether or not the stake sale will proceed as hoped since skepticism remains high among potential buyers about the profitability of the aircraft industry.
“Frankly, the aircraft industry here is not so attractive. It’s neither lucrative nor prospective,” said an official of Samsung Techwin, which is rumored to be the favorite of Cheong Wa Dae regarding the KAI takeover.
Korean Air, on the other hand, has shown keen interest in taking over the government’s stake in KAI in an effort to achieve its long-cherished dream of consolidating the nation’s aircraft-building sector into a single company. The firm, however, is said to lack financial resources.
Previously, the national flag carrier had unsuccessfully attempted to buy the stake held by the government and Doosan through a consortium with domestic and foreign firms, including Boeing of the United States and the European defense giant, EADS.
“It’s obvious that Chairman Cho Yang-ho wants to take over KAI, but many things aren’t clear, such as when and how,” a KAL executive said. He didn’t rule out the possibility that his firm would seek a multinational consortium again.
Still, Boeing and EADS are known to have an interest in the stake sale, as both aerospace giants do not want either of them to dominate the Korean aircraft industry through a takeover.
Other potential buyers include Hanwha Corporation and LIG Nex1.
The game is unfolding, which could change the character of the Korean aerospace industry.