The Board of Audit and Inspection of Korea (BAI) is reportedly closely examining whether there were any unfair privileges taken or solicitation involved in the process of the government’s shares returning to the private sector. This scrutiny pertains to the massive policy fund-supported restructuring deal conducted by the Korea Development Bank (KDB) during the Moon Jae-in administration.
According to financial industry sources and the BAI on Nov. 7, the audit agency began a detailed examination of the KDB, commencing from Oct. 23. Although the stated purpose of this audit is to confirm the use of policy funds, there is speculation that it is primarily focused on the restructuring deals undertaken by the KDB during the previous administration. The audit agency is reportedly closely examining several M&A transactions carried out by the KDB, including the 2021 sale of Daewoo E&C to Jungheung Construction, to assess whether any preferential treatment was involved in these processes.
In 2021, the KDB established a subsidiary named KDB Investment (KDBI) during the sale of Daewoo E&C. Following this, it initiated the sale process after transferring its stake in Daewoo E&C. In the primary bidding, Jungheung Construction offered 2.3 trillion won (US$1.75 billion), which is equivalent to 11,000 won per share, while the DS Consortium proposed 1.8 trillion won, which is equivalent to 8,500 won per share. Consequently, Jungheung Construction was chosen as the preferred negotiation partner.
Subsequently, when Jungheung Construction expressed dissatisfaction with the price difference compared to the second-place bidder and even hinted at withdrawing from the acquisition, KDBI conducted an exceptional re-bidding process. Eventually, Jungheung Construction acquired Daewoo E&C for a reduced amount of 2.1 trillion won, which was 200 billion won less than its initial offer, through the re-bidding. While the KDB maintains the stance that it was not a re-bidding but merely a modification of the transaction conditions such as the price, the market has raised allegations of favoritism as it provided an opportunity to revise the price in the highest bid deal.
The BAI harbors suspicions of whether Jungheung Construction received undue favoritism during the re-bidding process. This audit is expected to raise questions concerning Lee Dong-geol, the former KDB chairman, and senior officials within the Moon Jae-in administration.