The Korea Development Bank (KDB) is planning to initiate the disposal of Daewoo Engineering & Construction in September after lead manager selection scheduled for next month, according to industry sources.
At present, a private equity fund fully owned by the KDB has 50.75% of the builder’s shares and the fund matures in October. The KDB is going to extend the maturity without liquidating it in order to concentrate on the disposal.
Late last year, Daewoo E&C reflected a current net loss of 754.9 billion won (US$679 million) in its financial statements, reducing market participants’ doubts about financial overstatements. In the first quarter, its sales and operating profit increased 3.2% and 171% from a year ago to 2.6401 trillion won (US$2.37 billion) and 233.1 billion won (US$209 million), respectively. Losses from its overseas business have been covered by domestic apartment reconstruction contracts and so on and credit rating agencies have excluded Daewoo E&C from their blacklists.
Still, some experts point out that Daewoo E&C has a very high cost ratio in overseas plant construction and many of its houses built in South Korea may not be sold due to concentration of supply in 2018 and later. “We have looked into every site of business and reached a conclusion that short-term risk factors are not that worrisome,” the KDB mentioned in response, adding, “Daewoo E&C has continued to reduce the size of its overseas business and its domestic apartment supply is mainly in the metropolitan area, where the chance is high enough.”
The bank is also working with McKinsey & Company so that the disposal can turn out well and Daewoo E&C can go through an optimal reform process in the event of failure of the disposal.