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State-run Korea Development Bank announced on Friday it would sell off a combined 50.4 percent stake held by state companies in Daewoo Shipbuilding & Marine Engineering Co., inviting bidders by next Wednesday.
The bank and state-run Korea Asset Management Corp are offering their combined 96.4 million shares, valued at around 3.5 trillion won (US$3.0 billion) at Friday's closing price of 36,200 won a share.
The bank holds a 31.3 percent stake in the world's third-largest shipbuilder, while KAMCO controls 19.1 percent as a result of the government's bailing out the shipyard in the aftermath of the 1997-98 Asian financial crisis.
The preferred bidder for the controlling stake will be announced in October and the stake sale completed by the end of this year, bank officials said.
The deal effectively rules out foreign contenders as the bank said a bidder must meet the legal requirements to invest in the defense industry as the shipyard is the country's major producer of warships and submarines.
Under South Korean law, the government can ban the sale of companies that could result in the transfer of classified military technology. The bank also said an overseas investor is not allowed to hold more than a 10 percent stake, another measure to protect the shipbuilder from any foreign takeover bids.
At least three major local companies have so far expressed their interest in taking over the shipbuilder, such as POSCO, the world's fourth-largest steelmaker, and two family-run conglomerates, GS Group and Hanhwa Group.
POSCO, which is considered the strongest candidate with abundant cash reserves and transparency in corporate management, eyes to expand its business portfolio by taking over the shipyard.
"An acquisition of Daewoo Shipbuilding would provide a new growth engine for us to cope with the saturated local steel market," POSCO spokeswoman Ko Min-jin said. "It would boost the future growth of POSCO in the local market," she said, noting the steelmaker is expanding its overseas business focused on Vietnam and India.
“By taking over the shipbuilder, POSCO can offer package deals under which we will help build shipyards and steal mills for energy-rich developing countries in return for their stable supplies of raw materials," she said. POSCO would feed steel to its possible shipyard affiliate, Ko said.
To bid for the shipbuilder, POSCO is seeking a partnership with South Korea's National Pension Service that plans to spend up to 1.5 trillion won to make a joint bid for the stake in Daewoo Shipbuilding.
Construction-focused GS Group is also preparing for the Daewoo bid, hoping that an acquisition would create synergies in its mainstay industrial plant business. GS Group owns a 50 percent stake in South Korea's second-largest oil refiner, GS-Caltex, in a joint venture with ChevronTexaco Corp of the United States. It seeks to join hands with "strategic investors" for the bid.
Hanhwa, which owns a petrochemical maker and an insurance company, hopes to make itself a global giant with annual sales of 100 trillion won by 2017 by taking over the shipyard.
GS and Hanhwa said there would be no problems in funding the bid. Analysts said the deal is expected to reach US$8 billion, more than double its current market valuation, due to competition fueled by strong earnings prospects for Daewoo Shipbuilding.
Daewoo Shipbuilding's profits have soared in recent years on rising demand for high-priced ships, such as crude and gas carriers and oil drilling ships. Its second-quarter net profit gained 12.6 percent from a year earlier to 115 billion won. Sales climbed 52.3 percent to 2.63 trillion won, and operating income gained 152 percent to 189 billion won.
On Friday, it won a deal to build four crude tankers for 743 billion won from Kuwait Oil Tanker Co. So far this year, the shipbuilder has won deals valued at US$11.61 billion to build 59 vessels, accounting for 66.3 percent of its yearly target of US$17.5 billion.
South Korea is home to the world's largest shipyards, including market leader Hyundai Heavy Industries Co. and No. 2 Samsung Heavy Industries Co.
