HE&C sale going adrift amid prospects of legal entanglement
By Cho Jin-seo
Hyundai Group Friday threatened to take “all possible legal action” against Korea Exchange Bank (KEB), one of three key creditors, which are moving to nullify the conglomerate’s status of preferred negotiator in the first round of bidding for Hyundai Engineering and Construction (HE&C).
In a press release, Hyundai Securities, an affiliate of Hyundai Group, said, “We have delegated our voting right to KEB and requested it to approve on our behalf for the HE&C sale to Hyundai Group. If our request is turned down, we will take all possible action against KEB.”
The conglomerate also issued a statement rebutting the creditors’ move to disqualify it as a preferred bidder, indicating further legal action against creditors.
Multiple lawsuits have already, been filed by Hyundai Group and its rival bidder Hyundai Automotive Group, adding to the prospect of turning the HE&C bidding into one big legal entanglement.
Meanwhile, three main creditors _KEB, Korea Finance Corp. and Woori Bank _ held a press conference on Friday and said that they would decide whether to scrap the deal by Wednesday (Dec. 22). The deal needs consent from all of the three major creditors in order to proceed, which is unlikely.
“The creditors must rescind its strange statement that no one can understand,” Hyundai Group said in the statement. “We feel sorry that the creditors are not protecting Hyundai Group, which has the exclusive right to negotiate with them, and are trying to nullify our memorandum of understanding and not to sign the share purchasing agreement.”
Hyundai Group, Hyundai Automotive Group and HE&C were all part of the original Hyundai Group. Hyun Jeong-eun, daughter-in-law of Hyundai founder Chung Ju-yung, is leading what is left of the Hyundai Group while Chung Mong-goo, the eldest son of the founder, has branched out to lead the car-making units of Hyundai-Kia. They have been fighting against each other to buy HE&C, which has been under the control of creditors.
Hyun’s Hyundai Group had won the bid for a 34.88 percent holding in HE&C for 5.5 trillion won ($4.8 billion), thwarting a bid by Hyundai Automotive Group. It surprised many and shocked the people at the Automotive Group as they thought they were financially more able. It was revealed that the winner suggested a higher price which would be only possible by a high amount of debt, which is now seen as suspiciously risky by the creditors as well as the lost bidder.
Hyundai Group says that it has presented additional proof of funding on the creditors’ demands on two occasions. The bidder also argues that it is rare in the world of corporate merger and acquisition deals that sellers rebuke a memorandum of understanding (MOU) even though there nothing much has changed since the signing. The group argues that it was the sellers’ job to carefully review all the applications in the bidding process, and it makes no sense to raise fresh questions afterward.
In the creditors’ group, KEB has a 25 percent stake, while the Korea Finance Corp. and Woori hold 22.5 percent and 21.4 percent, respectively.
If more than 75 percent of all creditors approve the cancellation, the MOU will be nullified, putting the sale of the construction company back into deadlock. For approval of the share purchase agreement, more than 80 percent is needed, meaning that if one of the three major creditor banks opposes it, the deal could be dropped. But market analysts believe that Hyundai Group may sue the creditors if this happens, which will make it difficult for the creditors to find a new buyer.
Another issue is the deposit of 275.5 billion won Hyundai Group paid to the creditors. The creditors will also decide by Wednesday on whether they should refund it.
They will also announce on Wednesday whether to pass the status of preferred bidder to Hyundai Automotive Group.
