By Kim Yoo-chul
Staff Reporter
The bid by Hanwha Group for Daewoo Shipbuilding & Marine Engineering (DSME), has suffered a potentially serious setback as the National Pension Service (NPS) Thursday scrapped its plan to bid for the world's third-largest shipyard.
NPS, the world's fifth-largest pension fund by assets, has a total of 230 trillion won under its management and is a key institutional investor.
``We relied on NPS to chip in a large portion of funding. It is not good news for us,'' a group official told The Korea Times.
In August, the NPS announced it was considering spending up to 1.5 trillion won or some $1.25 billion in a consortium. Hanwha, the country's 13-largest conglomerate, was the most serious among the four declared bidders to court the pension fund.
By one estimate, the debt to equity ratio of the group was 273 percent, while its construction and chemical unit reached 214 percent and 93.6 percent as of September, respectively. The ratio of its competitors POSCO and GS Holdings marked a meager 25 percent and 26 percent.
Even the group's corporate bond rating was A-, which is also lower than POSCO's AAA and AA of GS.
``The group's cash reserves are quite low. The departure of the NPS is a major blow to Hanwha,'' a high-ranking industry source said, asking not to be identified.
In the same term, POSCO has at least 3.5 trillion won, while GS Construction has over 400 billion won in funding, excluding its cash cow GS Caltex.
Industry watchers say tumbling global economies hit by the deepening credit crunch in the United States have also been adversely affecting Hanwha's plan to conduct an IPO for its Korea Life insurance unit to fund its bid.
Earlier Hanwha said it planned to sell a 10 percent stake in Korea Life for about $750 million from foreign investors.
Some in the industry believe that Hanwha may have to delay its IPO plan
Hanwha spokesman said the sudden exit by the NPS would be a ``minor factor'' of its moves.
State-run Korea Development Bank and a government asset management agency plan to pick a preferred bidder this month to sell a 50.4 percent stake of the shipyard, which is worth about 7 trillion won ― $5.8 billion.
The deal has drawn much attention from bidders as the winner could benefit from the shipyard's lucrative energy-related business and strong cash flows.