KDB pushing for Daewoo E&C sell-off without union backing

Daewoo Engineering & Construction (Daewoo E&C)'s headquarters in Seoul / Courtesy of Daewoo E&C

By Kim Hyun-bin

Korea Development Bank (KDB) Investment is pushing ahead with the sale of Daewoo E&C without union support.

The Daewoo E&C union has voiced strong opposition to KDB Investment's move to sell the company, calling on the state-run financial company to make the sale process more transparent.

"Korea Development Bank (KDB) needs to halt its ego-centric sell-off procedures and conduct a sell-off that can sustain the management of the company,” a Daewoo E&C union representative said. “KDB doesn't see the need to communicate with the union and has been avoiding us. Even the executives were unaware of the selection of the sale supervisor and were only informed about it through the media.”

According to industry sources, KDB Investment, which is the largest shareholder of Daewoo E&C, recently decided to conduct an open bidding process and requested that prospective companies submit their letters of intent (LOI) by the end of June.

Daewoo E&C's corporate banner / Yonhap

“A state-run bank successfully selling off a company should pave the way for the secure and sustainable continuation of the management of the company, as well as set conditions that allow the company to grow and contribute to local industry development,” the union added.

Daewoo Engineering & Construction (E&C) is currently entering the sell-off process, with the preliminary bidding to be held later this month, while the prospective buyers are expected to be selected in early July. The formal bidding is scheduled for August.

KDB selected Bank of America Merrill Lynch as the sale supervisor and plans to sell all of its 50.75 percent stake in the company. The stake is valued at around 2 trillion won. Daewoo E&C's market capitalization stands at around 3 trillion won. BOA was also selected as the sale supervisor for the company back in 2017, during KDB's first attempt to sell Daewoo E&C.

Currently, DS Networks, Skylake Investments, IPM Consortium and Jungheung Construction have shown their intention to purchase the company, while China State Construction, Abu Dhabi Investment Authority and Hahn & Company have also been showing interest in the deal, among other financial and strategic investors.

The DS Networks Consortium recently submitted its LOI and selected Morgan Stanley as its investment consultant.

Jungheung Group conducted a formal review of the acquisition and was one of the prospective purchasing candidates when KDB Investment put Daewoo E&C up for sale in the previous public bidding in 2017. The group plans to establish a task force (TF) to discuss possible acquisition scenarios and financing options.

“Jungheung Construction has no overseas businesses, and their CEO went to prison for creating a slush fund. Yet it is preparing to acquire Daewoo E&C, which procures numerous global projects,” the union said, criticizing Jungheung's involvement.

KDB Investment failed to sell the company to Hoban Construction in 2017, after negotiations fell through at the last minute. Industry watchers believe that the company's main focus will be to seal the deal this time around. There is a possibility that KDB will request performance bonds from the preferred bidder. Performance bonds are similar to a down payment following a formal bidding, once the preferred bidder is selected.

The union emphasized that the sell-off procedure is not based on any basic principles. It stated that KDB Investment has contacted prospective buyers in advance to discuss the possible sell-off, which is not a fair nor a transparent practice, as it will be seen as an already fixed deal between KDB and the prospective buyers.

“For a successful sell-off, KDB needs to return to square one and first discuss the process with Daewoo E&C employees, as well as contemplate ways to sustain management and development of the company through the deal,” the union said. “These efforts should be embedded in the sell-off procedures, thus bringing forth buyers that have a sincere will to sustain management of the company.”