* Korean Air drops bid, deems current share price too high
* Two or more bids needed for valid gov't stake sale
* Latest in stalled divestments by Lee gov't
By Joyce Lee
SEOUL, Dec 17 The sale of an estimated $1.1
billion stake in Korea Aerospace Industries (KAI), the country's
sole aircraft maker, was cast in doubt after Korean Air pulled
out of negotiations, marring the privatisation efforts of the
The stake in KAI held by Korea Finance Corp and
other shareholders was among a number of assets that the
outgoing administration of President Lee Myung-bak has attempted
to sell. Had the deal been successful, it would have been be one
of the few South Korean stake sales expected to fetch more than
1 trillion won this year.
Korean Air Lines Co Ltd, which submitted an
initial bid in September and participated in the due diligence
process that ended Dec. 7, did not submit a bid, a spokesman for
the airline said on Monday.
Hyundai Heavy Industries Co Ltd submitted the
sole binding bid for the 41.75 percent stake, Korea Finance
Corp, KAI's largest shareholder, said in a press release.
As the stake includes the holdings of a government-run
company, the sale is subject to South Korean rules which
stipulate that a government stake auction must have two or more
bidders to be valid.
Korea Finance Corp said future proceedings concerning the
KAI stake will be decided after discussions with KAI's
Korean Air said in a statement that after due diligence, the
airline decided to drop its bid as it deemed the market value of
KAI shares "unsuitable."
Korea Finance Corp and other KAI shareholders had maintained
they would not accept a bid price under the current trading
Shares in KAI closed 3.1 percent higher at 26,700 won ahead
of the company press releases, outperfoming the wider market
"The law makes it clear a government stake must be sold
above a 'reasonable' price, of which the recent weighted market
value is a key factor," a Korea Finance Corp official directly
overseeing the sale previously told Reuters.
The offered stake is worth 1.1 trillion won ($1.02 billion)
as of Monday's closing price, excluding management premium.
Korean Air's pullout confirmed media speculation that at
least one bidder might not participate after both strong
candidates for the South Korean presidential election to be held
on Wednesday expressed concerns over the sale.
In a televised debate on Sunday, main opposition candidate
Moon Jae-in criticised the current administration's attempt to
privatise KAI, while conservative candidate Park Geun-hye
expressed the need for caution in privatising the aircraft
Other government divestments that have failed or stalled
include the attempt to sell the $5.2 billion controlling stake
in Woori Finance Holdings and the initial offering
of an up to $5.3 billion stake in KDB Financial Group.
KAI's sale attempt had been plagued with uncertainty,
including a postponement of binding bid deadlines when protests
by KAI's labour union blocked access to KAI's files when the
bidders were conducting their due diligence.
Credit Suisse and Korea Development Bank were the
lead managers for the sale.
($1 = 1074.7500 Korean won)
(Reporting by Joyce Lee; Editing by Ryan Woo)