South Korean Private Equity Firms Looking to Buy Kumho Industrial


February 26, 2015

Wednesday saw the reports that South Korean private equity firms MBK Partners and IMM are among the companies that have decided to team up and launch a controlling stake bid for Kumho Industrial. The South-Korean building company is currently faced with large-scale debt issues. If the bid were to go through, the private equity firms would also gain hold of the airliner Asiana Airlines.


Plenty of Interest
The private equity firms might be faced with more competition. According to Yonhap News, five investment firms have also provided a letter of intent to get a hold of the builder. This included companies such as IBK Securities-Keistone Partners and Mirae Asset Private Equity. It is possible the firms are set to launch a bid together.


Furthermore, midsize builder Huban Construction is after the company. Huban Construction currently has a 4.95% stake in Kumho Industrial and could, according to some reports, have a large amount of capital available for the potential purchase.


Debt-Ridden Company
The company’s creditor banks, Korea Development Bank (KDP) and Credit Suisse announced they are looking to sell a 57.5% controlling stake of the company. Kumho Industrial has been dealing with debt problems. The real estate conditions in the country have declined leading to equity problems and the company recently came out of a debt workout program last December.


The company is currently among the top 20 local construction firms. Its parent company, Kumho Asiana Group is struggling with its own debt problems, as it’s been suffering from chronic debt since buying a large-scale stake in Daewoo Engineering & Construction in 2006.


Profitable Affiliates
Although the company is currently in a relatively bad market position, the value for the shares comes mainly from its wealthy affiliates. The company has a 30.08% controlling stake in South Korea’s second largest airliner, Asiana Airlines. On top of this, the company also has a controlling stake in local low-cost operator Air Asian Busan Co and three other affiliates due to complex web of shareholding.


According to Reuters, Kumho Industrial’s market value stood at $469 million on Wednesday afternoon. After the news broke out the share price for Kumho went down and closed 3.5% lower. Furthermore, Asiana’s shares declined 3.5% compared to the 0.7% gain in the benchmark. Jin Dae-chon, a stock analyst from Daeshin Securities, told Korea Herald, “Given the premium on control over Asiana Airlines, the cost of acquisition is expected to soar to 1 trillion won”.


Possible Rejection
Once the company finds a preferred bidder, there is still a possibility for the bid to be rejected. The Kumho Asiana Group’s chairman and member of the larger Kumho Groups founding family, Park Sam-koo, has right of first refusal and would be offered the chance to buy a 50% stake. Some analysts believe Park might be looking to purchase the company, but many of the private equity firms have plenty of capital at hand.


It is likely that the competition for the company will be heated and it may be a while before anything is finalised. Kumho Asiana didn’t provide official comment on Wednesday.

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