Global competition heats up over Daewoo E&C takeover

Global competition heats up over Daewoo E&C takeover

Daewoo Engineering & Construction (Daewoo E&C) headquarters in Seoul / Courtesy of Daewoo E&C

By Park Jae-hyuk

The forthcoming sale of Daewoo Engineering & Construction (Daewoo E&C) has prompted an international rivalry among potential buyers from Korea, China and the UAE, as the builder’s valuation has soared lately due to an earnings surprise.

After Daewoo E&C’s owner, KDB Investment, kicked off the procedure to select the underwriters for the sale from among multiple securities and accounting firms, all eyes are on which company will purchase a 50.75 percent stake in the builder, the value of which is estimated at up to 2 trillion won ($1.8 billion).

The most recently emerged candidate is the Abu Dhabi Investment Authority (ADIA), one of the largest sovereign wealth funds in the Middle East, having around $700 billion in assets under its management.

ADIA, which had sought to acquire Daewoo E&C in 2009 from its owner at that time, Kumho Asiana Group, reportedly told KDB Investment, a subsidiary of the state-run Korea Development Bank (KDB), about its intention to take over the construction firm, recognizing the company for participating in various lucrative projects in the Middle East.

According to industry sources, Daewoo E&C appears to be hoping for ADIA’s acquisition, as it witnessed the stabilization of Ssangyong E&C’s financial conditions following a takeover in 2015 by another Middle East sovereign wealth fund, the Investment Corporation of Dubai.

Jungheung Construction, a Gwangju-based builder, also showed keen interest in the acquisition. It was one of potential buyers when KDB attempted to sell Daewoo E&C in 2017.

Other probable bidders include China State Construction Engineering, and a consortium consisting of the real estate developer, DS Networks, local private equity firm (PEF) SkyLake Equity Partners and multinational infrastructure investor IPM. The consortium reportedly hired Morgan Stanley as an adviser for the takeover bid.

In addition, Hahn & Company is reviewing its participation in the bid. The PEF is expected to form a consortium with a strategic investor if it enters into the competition.

The Daewoo E&C union, however, has protested fiercely against the company’s possible acquisition by a PEF, criticizing the management for having talks with what the union called, “speculative capital.” The union has yet to comment on the Chinese builder and the Middle East sovereign wealth fund.

Daewoo E&C has been put up for sale frequently over the past decade.

It was sold to Kumho in 2006 after the dissolution of Daewoo Group, but Kumho put the builder up for sale again in 2009 due to financial difficulties. It was sold eventually to KDB in 2010 as conglomerates were reluctant to buy the company during the global financial crisis.

The state-run bank’s previous attempt to sell the builder in 2017 fell through because Hoban Construction, which had been selected as the preferred bidder, dropped out of the deal after realizing Daewoo E&C’s large-scale loss from the Safi power station project in Morocco.

In 2019, KDB sold its stake in Daewoo E&C to its subsidiary, KDB Investment.

Market observers view this year as the right moment to sell the construction firm, considering its first-quarter operating and net profits, which rose 89.7 percent and 138.9 percent year-on-year, respectively.

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