Daewoo Shipbuilding and Ssangyong Motor Resolved for Now... KDB's Remaining Restructuring Challenges

Asiana, HMM, KDB Saengmyeong, and Others' Remaining Tasks: "Need to Accelerate Timely"

[Image source=Yonhap News]

[Asia Economy Reporter Yoo Je-hoon] As KDB Industrial Bank transfers Daewoo Shipbuilding & Marine Engineering to Hanwha Group and Ssangyong Motor to KG Group, long-standing issues are being resolved one by one. With major assets such as Asiana Airlines, HMM (formerly Hyundai Merchant Marine), and KDB Life Insurance (formerly Kumho Life Insurance) still pending, attention is focused on whether KDB will leverage the momentum from the early days of the administration to pursue a 'speedy and decisive' sale.

The 20-year-old 'lingering pain' finally resolved

On the 26th, Daewoo Shipbuilding & Marine Engineering signed a conditional investment agreement (MOU) with Hanwha Group, including a third-party allotment capital increase plan worth 2 trillion KRW. If Hanwha Group is confirmed as the final investor through a 'Stalking Horse' competitive bidding process, Daewoo Shipbuilding will conduct a capital increase targeting Hanwha Group affiliates, and Hanwha Group will secure a 49.3% stake and management rights. Once all processes are completed, Daewoo Shipbuilding will leave KDB’s custody after 21 years since graduating from workout in 2001.

Kang Seok-hoon, chairman of KDB, stated at a press conference the day before, "Through this investment attraction, Daewoo Shipbuilding will respond to future funding shortages with a capital increase of 2 trillion KRW and secure investment funds for future growth engines," adding, "(As creditors) the possibility of debt recovery increases, minimizing losses for the creditors."

The key issue is opposition from the labor union, one of the stakeholders. Previously, the union physically blocked due diligence during Hyundai Heavy Industries Group's acquisition attempt in 2019, acting as an obstacle to the sale. The Daewoo Shipbuilding branch of the Korean Metal Workers' Union issued a statement calling it a "one-sided, secretive, and preferential sale without the participation of the parties involved," demanding "transparent disclosure of the sale progress to the branch and union participation."

Another 'lingering pain,' the Ssangyong Motor issue, has also been tentatively resolved. Ssangyong entered workout in 1999, was acquired by Shanghai Automotive in 2004 but fell back into court receivership amid so-called 'eat-and-run' controversies. It was acquired again by India's Mahindra Group in 2011 but entered corporate rehabilitation again in 2020, becoming a headache. The sale process was also rocky. SM Group, a leading bidder, withdrew, and Edison Motors was selected as the preferred negotiator, but concerns about Edison Motors' capability to restore Ssangyong's management materialized in the cancellation of the M&A contract.

However, with KG Group emerging as the acquirer in the second sale round, the Ssangyong issue seems to be coming to a close. KG Mobility, a subsidiary of KG Group, acquired 73,098,000 shares through a third-party allotment capital increase on the 21st, becoming the largest shareholder with a 61.86% stake according to Ssangyong's rehabilitation plan, and plans to further increase its stake through additional capital increases for public bond repayments.

Will the remaining tasks of Asiana, HMM, and KDB Life speed up?

Having completed the major tasks of Daewoo Shipbuilding and Ssangyong Motor, KDB’s immediate priority is the integration of Korean Air and Asiana Airlines. Nearly two years have passed since the deal began, but approval procedures remain in four essential merger approval countries?the U.S., European Union (EU), China, and Japan?and one voluntary reporting country, the U.K.

Previously, the 'big deal' plan for Hyundai Heavy Industries to acquire Daewoo Shipbuilding was canceled due to the EU competition authority's disapproval, raising concerns that the Korean Air and Asiana Airlines case might follow a similar path. For example, Spain's largest airline group, IAG, faced setbacks when its acquisition of third-ranked airline Air Europa was blocked by the EU competition authority. There are also concerns that China's decision may involve political considerations.

However, the airline industry shows a more optimistic atmosphere. Major carriers argue that the situation differs from shipbuilding, which is concentrated in the EU. Han Joon-tae, chairman of Hanjin Group, expressed optimism in a June interview with Flight Global, saying, "We expect to receive approval for the Asiana Airlines merger from U.S. and EU competition authorities by the end of this year," adding, "Reviews in other countries are progressing at a similar pace, so we anticipate everything will be completed by year-end."

Following Asiana Airlines and Daewoo Shipbuilding, HMM is a highly watched asset. With the government's shipping industry revitalization and the logistics crisis caused by the COVID-19 pandemic coinciding, HMM posted record operating profits of 7.3775 trillion KRW last year and 6.0856 trillion KRW in the first half of this year. KDB and Korea Ocean Business Corporation hold 20.69% and 19.95% stakes, respectively.

KDB has also shown willingness to sell. Chairman Kang said at a press conference marking his 100th day in office on the 14th, "According to Article 40, Clause 4 of KDB's articles of incorporation, 'When the investment purpose is achieved, the relevant shares shall be promptly sold at market price considering the trading method, but the board of directors shall determine the investment purpose achievement and market price,'" adding, "(Since HMM) has now become a normal company, inter-ministerial consultation is necessary."

Industry insiders cite Hyundai Motor Group, POSCO Group, and SM Group as companies capable of acquiring HMM and generating synergy. Hyundai Motor Group was the original owner during the old Hyundai Group era and has financial strength and potential synergy with Hyundai Glovis. SM Group is increasing its HMM stake and owns container shipping company SM Line, enabling economies of scale. POSCO Group has recently been strengthening its logistics business.

The key point is the enormous estimated sale price, around 10 trillion KRW. Considering the public institutions' stakes held by KDB and Korea Ocean Business Corporation, plus the conversion of perpetual bonds held by both institutions into shares, the total stake exceeds 70%, and given the market capitalization (9 trillion KRW), several trillion KRW in funds may be required.

KDB Life Insurance, incorporated under KDB in 2010, is another asset that has struggled to find a private owner for over a decade. JC Partners attempted acquisition last year and underwent major shareholder suitability review by financial authorities, but the process failed as MG Insurance, which it managed, was designated a financially distressed institution, leading to contract termination. A financial industry official said, "After many twists and turns, HMM has laid the groundwork for management normalization, and KDB Life Insurance is also performing reasonably well," adding, "To avoid turning it into a burden like Daewoo Shipbuilding and to ensure sufficient recovery of public funds, it is necessary to proceed with sales timely and swiftly."

This content was produced with the assistance of AI translation services.