Tug of war starts over price between Jungheung and KDBI Two sides sit at negotiation table after completion of due diligence on Daewoo E&C

Translated by Ryu Ho-joung 공개 2021-10-13 08:24:14

이 기사는 2021년 10월 13일 08:06 더벨 유료페이지에 표출된 기사입니다.

A tug of war over the final price of Daewoo Engineering & Construction between Jungheung Group and Korea Development Bank Investment is about to start as the two sides are back at the negotiation table following the completion of due diligence.

Jungheung, which was named as the preferred buyer of Daewoo E&C in June, has completed detailed due diligence on the company’s construction projects at home and abroad and is set to enter into negotiations with KDBI on the final price, according to industry sources.

Under the agreement between the two sides, the discount threshold is about 2% of the initial offer of 2.1 trillion won ($1.75 billion), or approximately 40 billion won.

Jungheung is entitled to ask KDBI to adjust the price based on the due diligence results, while KDBI has the right not to accept the request if there are mitigating factors.

The deal could be signed before the end of the year if they reached an agreement on the price. But if they fail to reach an agreement, a third-party adviser may need to be hired or legal action could be initiated by either side, making the negotiations more difficult.

However, this might not be what KDBI want after all because a longer negotiation period will result in higher interest burden for the investment firm.

KDBI, the investment arm of the state-controlled lender KDB, acquired 50.75% of Daewoo E&C from its parent company in 2019, with 500 billion won funded through a loan from KDB and the remaining 860.6 billion won invested through KDBI’s first fund.

Last year the KDBI’s fund recorded a net loss of 18.1 billion won largely due to interest costs. Based on financial information of the fund, an interest rate for the 500 billion won loan is estimated to be above 3.5%.

The longer the negotiations drag on without agreement, the more KDBI needs to pay in interest. “The loan was priced at the market rate at the time and was structured to be repaid after the sale (of Daewoo E&C) is completed,” said KDBI’s chief executive officer Lee Dae-hyun said. (Reporting by Min-kyu Sin)
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