UPDATE 2-KDB scraps Daewoo shipyard sale to Hanwha-report

(Adds estimated value of Daewoo sale, details)

By Kim Yeon-hee

SEOUL, Jan 21 (Reuters) - Korea Development Bank (KDB) has ended talks to sell a majority stake in Daewoo Shipbuilding, worth an estimated $5 billion, to South Korea's Hanwha Group on differences over financial terms, Yonhap reported on Wednesday.

"We judged that negotiations with Hanwha would be difficult to continue and therefore we decided to seize Hanwha's deposit of 300 billion won ($220 million)," the news agency quoted an unnamed source in charge of the sale as saying, referring to the initial amount Hanwha (000880.KS) put down for the sale.

The collapse of the sale would be a major setback for the South Korean banks, which are striving to dust off the legacy of Asia's 1997-98 financial crisis by selling remaining assets including Hyundai Engineering & Construction (000720.KS) and a controlling stake in Hynix Semiconductor (000660.KS).

KDB spokesman Kim Tae-kyoon said he had no knowledge of the reported collapse of the deal, adding the bank would hold a news conference on Thursday to explain its position.

Hanwha Group spokesman Ju Cheol-beom said the group would not respond to the report until KDB notified it of a formal decision.

Chemicals-to-brokerage group Hanwha, led by explosives maker Hanwha Corp, was picked by Seoul in October as the buyer of a 50.4 percent stake in the world's No. 3 shipbuilder.

Hanwha had hoped to sell assets and raise money from banks and other investors to pay for the deal, but financing markets have dried up in a brutal global economic downturn.

The stake on offer, held by KDB and debt clearer Korea Asset Management Corp, is worth 2 trillion won in the market, or half of its value six months ago, hit by the global financial crisis and worries about a slowdown in shipbuilding orders.

Hanwha had asked KDB, the shipmaker's top shareholder and lead manager of the deal, to delay the payment deadline or receive the amount in tranches, adding that it had yet to study Daewoo's books due to protests by the shipyard's labour union.

KDB agreed last month to delay the sale by one month.

Shares in Daewoo Shipbuilding & Marine Engineering (042660.KS) jumped as much as 9.6 percent and Hanwha Corp (000880.KS) extended gains into a fourth consecutive session as investors welcomed the reported failure of the sale.

Daewoo Shipbuilding trimmed gains to be up 1.7 percent by 0331 GMT, with Hanwha Corp up 1.5 percent in a broader market down 1.4 percent.

Sources familiar with the matter said earlier this month abandoning the deal was the better financial option for Hanwha given the current economic environment, with the costs of absorbing such a large asset likely to be damaging in the long term. [ID:nHKG68140]

Analysts expect Hanwha to take legal action to recover its deposit.

The global recession has hit South Korean conglomerates, which have made highly leveraged local and cross-border deals, with slumping values of acquired assets and earnings, and made it difficult to sell off non-core assets. ($1=1373.4 Won) (Editing by Jonathan Hopfner and Anshuman Daga)