(News Focus) Aborted shipyard sale to hamper privatization efforts

SEOUL, Jan. 21 (Yonhap) -- The aborted sale of a major bailed-out shipbuilder is expected to hurt government efforts to privatize firms injected with taxpayer money after the 1997 financial crisis, observers said Wednesday.

Earlier in the day, state-run Korea Development Bank's board of directors
terminated the sale of a 50.4-percent stake in Daewoo Shipbuilding & Marine
Engineering Co., worth roughly 6 trillion won (US$4.38 billion), to Hanwha Group.
The lender said it plans to make an official announcement Thursday on the
decision, and will say whether it plans to put the world's third-largest shipyard
up for sale again any time soon.
"This result was largely expected as Hanwha had faced difficulties raising funds
for the acquisition," said Choe Yong-koo, an analyst at Daewoo Securities. "KDB
was also reluctant to accept Hanwha's demand to revise the terms of the sale."
The lender seized a 300 billion won deposit that Hanwha had put down, according
to officials at KDB.
The sale of Daewoo Shipbuilding has been seen by many as a litmus test for the
government, which seeks to sell companies such as Hynix Semiconductor Inc. and
Hyundai Engineering & Construction Co. Both were bailed out through
debt-to-equity swaps with local banks in the aftermath of the financial crisis in
the late 1990s.
But the recent financial turmoil has impacted many South Korean companies that
have made highly leveraged local and cross-border deals in recent years. Now they
are struggling to gather cash by selling non-core assets as lenders remain
reluctant to invest amid a credit crunch of their own.
KDB has been working to salvage the deal with Hanwha, which was chosen as the
preferred bidder in October. But proceedings have been dragged out due to
liquidity problems at the conglomerate and resistance from the shipyard's labor
union.
The two sides had hoped to reach a final agreement by the end of last year. But
Hanwha asked KDB to delay the deadline by one month to allow it to gather
sufficient funds.
KDB proposed setting up a private equity fund with institutional investors to buy
assets offered by Hanwha instead of accepting the conglomerate's demand that it
be allowed to make payments in tranches.
"The rupture of the sale will likely affect planned sales of other companies such
as Hynix Semiconductor," said Song Jae-hak, an analyst at Woori Investment &
Securities. "Given current market conditions, it is widely expected that selling
state stakes in other companies will not be easy."
An official at KDB said it was not certain when the sale of the shipbuilder would
be complete.
"We plan to proceed with the sale of the shipyard depending on market situations,
but it will take time given the declining shipbuilding sector," the official
said.
POSCO, the world's fourth-largest steelmaker, was also seen as a potential buyer.
Last week, however, POSCO's outgoing CEO Lee Ku-taek said the steelmaker is no
longer interested.
POSCO was ordered to drop out of the auction last year after its consortium with
a local business group disintegrated.
The government said last year it plans to sell stakes of state-owned companies as
part of an effort recoup funds spent on bail-outs in 1997 and 1998.
KDB hold stakes in seven such companies, including Daewoo Securities and Hyundai
Corp.
Officials, however, remain skeptical as to how feasible that plan is.
"It's not just Daewoo Shipbuilding. It is going to be difficult to sell other
state-owned companies at the moment," said an official at the Financial Services
Commission, the nation's financial regulator. "They need to boost corporate value
until they are sold."
sam@yna.co.kr