Daewoo E&C union set to sue KDB chairman for malpractice

Korea Development Bank (KDB) Chairman Lee Dong-gull speaks during a press conference at the KDB headquarters in Seoul in this June 14 file photo. Courtesy of KDB

Jungheung faces bumpy road to finalizing acquisition

By Park Jae-hyuk

The union at Daewoo Engineering & Construction (Daewoo E&C) will ask the Board of Audit and Inspection and other investigative authorities to look into Korea Development Bank (KDB) Chairman Lee Dong-gull and KDB Investment CEO Lee Dae-hyun for alleged malpractice.

This comes as one of the union's responses to KDB Investment's decision Monday to select Jungheung Construction as the preferred bidder to acquire Daewoo.

“KDB Investment committed fraud by allowing Jungheung to lower its bid by 200 billion won ($176 million) from the 2.3 trillion won it initially offered, after the bidder threatened to drop out unless the seller allowed this,” the union said in a statement released Tuesday. “The decision was obvious malpractice.”

Although the seller declined to disclose the specific price Jungheung offered, KDB Investment has apparently allowed the company to lower its bid from 2.3 trillion won ($2 billion) to 2.1 trillion won.

Because of this, a consortium consisting of real estate developer DS Networks, local private equity firm SkyLake Equity Partners and infrastructure investor IPM, which was selected as the back-up bidder, apparently had no choice but to raise its bid from 1.8 trillion won to 2 trillion won, according to sources familiar with the issue.

The union will seek to prevent Jungheung from conducting due diligence on Daewoo E&C. It also plans to stage a strike to protest the Gwangju-based construction firm's acquisition.

“Jungheung committed an elementary-level mistake of offering a price which was 500 billion won higher than that its competitor offered, and it disrupted the bidding procedure by threatening the seller,” the union said. “It disrupted fair competition.”

KDB Investment is denying the union's allegations, saying both final bidders had been allowed to revise their bids from the beginning. The firm's CEO also emphasized in a press conference Monday that the revision of the bidding offers does not necessarily mean a “re-bidding,” although the union called this claim “sophistry.”

“The decision must be declared void and bidding should be conducted again under fairer procedures and rules,” the union said.

The intensifying conflict has aroused concerns that KDB Investment may fail once again to sell its controlling stake in Daewoo E&C, just as KDB did in 2017, when it selected Hoban Construction as the preferred bidder. Hoban dropped out of the deal at that time, after finding out about Daewoo E&C's large-scale losses from its Safi Power Plant project in Morocco. After the failure, KDB sold its Daewoo E&C stake to KDB Investment in 2019.

Jungheung, however, has committed to finalize the acquisition within this year by promptly completing all necessary measures, such as signing a memorandum of understanding with KDB Investment, conducting due diligence, signing a share purchase agreement and notifying the antitrust authorities of the acquisition.

The consortium led by DS Networks has ruled out the possibility of it taking legal action against the seller, although the union at Daewoo once considered partnering with it to oppose KDB Investment.

Concern is lingering among apartment owners over the possible damage to the value of Daewoo E&C's apartment brand, Prugio, given that the builder ranked sixth last year in terms of construction ability evaluation, while Jungheung was placed 35th.

In response, both Daewoo E&C and Jungheung said the former's Prugio brand will not be rebranded as the latter's S-Class brand after the takeover.