Jungheung wants to reduce cost of funding Daewoo E&C takeover Construction conglomerate wants 3% interest rate, much lower than market rates

Translated by Ryu Ho-joung 공개 2021-09-16 08:08:30

이 기사는 2021년 09월 16일 08:07 더벨 유료페이지에 표출된 기사입니다.

South Korea’s Jungheung Group is tapping the debt market as it prepares to finance its multi-billion dollar acquisition of Daewoo E&C.

The South Korean construction conglomerate in July signed a memorandum of understanding to acquire a 50.75% stake in Daewoo E&C from Korea Development Bank Investment (KDB Investment) for 2.1 trillion won ($1.8 billion). It has since been performing detailed due diligence and exploring options to finance the acquisition.

The conglomerate reportedly revealed in its document submitted to KDB Investment that it had cash on hand of 1.1 trillion won. With 600 billion won cash expected to be generated during the remaining period of this year, there is a total of 1.7 trillion won cash available to the conglomerate.

But given Jungheung’s conservative financial policy, many have expected that a large portion of the acquisition cost will be funded through debt financing.

KB Securities and Mirae Asset Securities are working with Jungheung to arrange acquisition financing. The two brokerage firms each provided 900 billion won of financing commitments to the conglomerate.

However, BBB-rated Jungheung is reportedly seeking an interest rate of 3% – more than 100 basis points lower than 4.237%, the average yield of BBB-rated bonds on September 13 – making its debt sale less attractive to investors.

Shares in Daewoo E&C, which is rated A- by the country’s credit rating agencies, are likely to be used as collateral. But investors will pay greater attention to Jungheung which is the debtor.

“Several large debt sales are expected before the end of the year considering major merger and acquisition deals announced this year,” an investor said. “If a relatively lower interest rate is offered by a debtor, this clearly reduces the attractiveness.” (Reporting by Hee-yeon Han)
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