Unusual sale process for Daewoo E&C raises eyebrows Seller asks potential buyers $44 mil pre-deposit after submitting binding offers

Translated by Ryu Ho-joung 공개 2021-06-22 08:25:44

이 기사는 2021년 06월 22일 08:15 더벨 유료페이지에 표출된 기사입니다.

Korea Development Bank (KDB) has been caught in controversy over its requirement for potential buyers interested in acquiring Daewoo E&C to pay a pre-deposit, a move that deviates from a typical sale process.

KDB’s mergers and acquisitions division and BoA Securities, which are managing the sale, have set the deadline for binding offers by Friday, according to a process letter sent to potential buyers of Daewoo E&C. The process letter also stated that a pre-deposit of 50 billion won ($44 million) should be paid to guarantee the purchase after submitting offers, industry sources said.

It is pretty unusual that the seller requires suitors to pay a pre-deposit during a round of bidding, industry watchers said. Typically, a preferred buyer selected through a bidding process pays a deposit of between 5% and 10% of the transaction value in advance at the time of agreement.

“Asking for a pre-deposit is just nonsense, especially when there are growing complains among potential buyers about a lack of information for due diligence, which hampers valuation,” said an industry insider.

Some view this move as a strong indication that KDB is committed to selling its 50.75% stake in the construction company, saying that the state-controlled lender might want to only invite bidders with real intentions to buy.

The pre-deposit requirement by KDB is likely to test suitors’ resolve in staying in the race, industry watchers said. “The seller skipped a preliminary bidding round and provided a relatively short time for due diligence, seemingly focusing on negotiations with each bidder,” a source said, adding that the 1-3% pre-deposit requirement was expected from the start of the sale process.

Some expect that private equity bidders may decide to pull out as they seem unlikely to draw down capital from limited partners for a deposit needed to participate in the bidding.

This has led to speculation that the seller prefers a strategic investor as a buyer. Another industry insider raised suspicion that KDB could have a potential buyer in its mind.

Potential buyers interested in bidding for Daewoo E&C include Jungheung Construction, a consortium consisting of DS Networks, SkyLake Equity Partners and IPM Group, and private equity firm IMM Private Equity.

The selection of a preferred buyer is expected to be made in July, which will be followed by exclusive negotiations. (Reporting by Seon-young Kim)
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