UPDATE 1-S.Korea's Daewoo Eng soars as parent Kumho readies sale

* Daewoo Engineering shares hit nine-month peak

* KDB private equity fund seen buying Kumho's Daewoo stake

(Recasts, adds KDB reaction, detail)

By Kim Yeon-hee and Rhee So-eui

SEOUL, June 29 (Reuters) - Shares in South Korea's Daewoo Engineering & Construction Co (047040.KS) jumped 15 percent on Monday after its cash-strapped controlling shareholder, Kumho Asiana Group, said it was looking to sell its stake.

Kumho Asiana said in a statement on Sunday that it plans to consider a tender offer, or a sale of its stake to a planned private equity fund set up by state-run Korea Development Bank

(KDB), its main creditor. [nSEO340774]

Kumho holds about 33 percent of Daewoo, while financial investors linked to the group, hold a further 39 percent. Their combined ownership is worth 3.4 trillion won ($2.6 billion) at the current market price.

"One of the main factors that had been pressuring Daewoo Engineering stock was that Kumho Asiana Group has management rights over the company," said Cho Joo-hyoung, an analyst at Hana Daetoo Securities.

"There have been worries about Kumho Asiana Group's financial health for quite some time.... and concerns that Daewoo Engineering may have to share the burdens weighed. The news eases such worries," Cho added.

Daewoo Engineering shares rose by their 15 percent daily limit to hit a nine-month high and were up 9.3 percent at 14,100 won at 0450 GMT, outperforming the wider market's 0.5 percent fall.

Shares in Kumho Asiana companies edged higher, with analysts saying a sale of Daewoo Engineering would mitigate some of the group's liquidity issues but would not help its earnings.

Petrochemicals-to-airline conglomerate Kumho Asiana bought Daewoo Engineering, South Korea's third-largest construction company, for about 6.4 trillion won ($5 billion) in 2006 as part of a debt-fuelled acquisition binge.

The country's 13th-largest business group by assets was among a handful of medium-sized conglomerates which over the past few years made aggressive leveraged buy-outs in their drive to grow closer in size to top-tier groups such as Samsung and LG.

Concerns about Kumho Asiana's financial problems deepened after it delayed its announced plans to raise 4.55 trillion won by selling assets, including unlisted Kumho Life.

VARIOUS OPTIONS

Kumho said it may consider various ways to unload Daewoo including the sale of a 39 percent stake held by financial investors including management rights, the sale of a 50 percent stake plus one share, and the sale of a 72 percent stake owned by the group and financial investors.

The financial investors are entitled to ask the group to buy back their shares at 31,500 won per share by the end of this year. The price for the "put back option" is more than double its current share price, and Kumho would have been liable for about 4.2 trillion won as of the end of March, according to analysts.

South Korean banks have been pushing for bold restructuring of business groups to prevent further deterioration in their cash-flows and loan books as the global economy slows.

KDB spokesman Sung Joo-young said it would start talks with Kumho from this week on how to resolve its liquidity problems.

"The market's consensus is that eventually KDB's private equity fund will buy Kumho's Daewoo stake," said Lee Sun-il, an analyst at Goodmorning Shinhan. "No one can easily invest trillions of won under current business conditions."

"If one looks at potential corporate buyers, they would likely be among the top 10 business groups," Lee said, adding that big conglomerates may benefit from having a construction unit that can handle internal orders.

Analysts cautioned that the sale of Daewoo would not be an easy feat, particularly in the current business climate.

"Daewoo's corporate value has fallen since the acquisition by Kumho Asiana and it is unlikely for a buyer to step in given the weak construction industry and the sale of Hyundai Engineering," said Hyundai Securities analyst Lee Chang-keun in a research note on Monday, referring to the anticipated sale of Hyundai Engineering and Construction (000720.KS).

($1=1285.9 Won)

(Additional reporting by Shin Ji-eun and Jungyoun Park; Writing by Marie-France Han; Editing by Lincoln Feast)

((mf.han@thomsonreuters.com; +82 2 3704 5667; Reuters Messaging: mf.han.reuters.com@reuters.net))

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