Financial investors of Doosan Infracore China Co (DICC), a Chinese subsidiary of Doosan Infracore, will cash out their investment by exercising drag-along rights.

Mirae Asset Global Investments, IMM Private Equity and Hana Financial Investment Private Equity have started a process to hire an advisor to exercise their drag-along rights on a combined 20% stake in DICC, industry sources said on Monday (February 15). The advisor is likely to be a Chinese investment bank, as DICC is based in China.

The key issue is whether a consortium of Hyundai Heavy Industries Holdings (HHI Holdings) and Korea Development Bank Investment will exercise a call option on the stake owned by the financial investors.

Market insiders believe it won’t be easy for the consortium to give up the company as DICC is increasing its market share in China and has excellent cash-generating ability.

DICC accounts for 20–25% of Doosan Infracore’s total revenue and nearly half of the construction equipment division’s revenue. DICC’s market share in the Chinese excavator market has increased to 23%, with its revenue increasing exponentially.

Financial investors acquired a 20% stake in DICC for 380 billion won ($338 million) in 2011 on condition that Doosan Infracore would list the Chinese unit in the Chinese stock market within three years. But its initial public offering did not go ahead and the investors sought to sell DICC by exercising their drag-along rights in 2015.

The financial investors filed a lawsuit alleging that Doosan Infracore was not reliably disclosing data. They lost, but the Supreme Court found drag-along rights were intact.

The HHI Holdings-led consortium reportedly valued the financial investors’ stake in DICC at around 200 billion won during its negotiations with Doosan Group. Market insiders said it is too undervalued and the management premium should be added on, as the financial investors have the right to sell their entire stake externally.

The financial investors’ stake is expected to be worth 600 billion won if the considerable amount of net cash that DICC holds is reflected in its enterprise value and the management premium is added, industry sources said.

With this in mind, the latest move is interpreted as a strategy by the investors to have their holding fairly evaluated. The HHI Holdings consortium has no right to adjust the price even if it exercises its call option.

Once the financial investors find a potential buyer, the consortium will have to buy all DICC shares they hold at a price set with that suitor. (Reporting by Si-eun Park)