Export-Import Bank of Korea (KEXIM) is now unlikely to complete the sale of Dae Sun Shipbuilding & Engineering Co Ltd this year because of the company’s poor financial situation, which could also weaken its bargaining position with bidders.
Potential buyers, including Dongil Steel Co Ltd, have been conducting due diligence on the company in a virtual data room since September 5, industry sources said on Wednesday (September 16), and are expected to decide whether to join the final round of bidding on October 7. Dongil Steel, considered a strong candidate to buy the South Korean mid-sized shipbuilder, is holding talks with financial investors on a possible consortium.
However, market insiders said the poor performance of Dae Sun Shipbuilding, which is expected to record a net loss of 30 billion won ($25 million) in 2020, may delay the sale process. KEXIM, the firm’s largest creditor, had planned to complete a deal by the end of this year, but the loss would then have to be reflected in the buyer’s financial statements.
If Dongil Steel takes over Dae Sun Shipbuilding by establishing a special purpose company (SPC), the SPC’s financial performance will be included in its consolidated financial statements, and will therefore have an impact on the parent company’s 2020 financial performance.
KEXIM, which failed to sign a contract with a stalking horse bidder, has reportedly dropped plans to sign a share purchase agreement this year, probably because potential buyers feel uncomfortable in completing a deal in this period.
“It is likely to be burdensome for potential buyers to accelerate the deal process, as Dae Sun Shipbuilding’s financial performance is expected to be somewhat negative this year,” said an industry source.
KEXIM is expected to still select its preferred bidder in October and sign a share purchase agreement at the end of the year, but is now likely to settle the balance in early 2021 after negotiations on the deal structure. Dae Sun Shipbuilding’s forecast losses could give potential buyers more bargaining power against KEXIM, industry sources said. (Reporting by Ik-hwan Choi)