March 26, 2008 / 3:59 AM / 12 years ago

South Korea starts Daewoo Shipbuilding sale, shares jump

SEOUL (Reuters) - South Korea said on Wednesday it has started the sale of Daewoo Shipbuilding and Marine Engineering Co (042660.KS), the world’s No. 3 shipbuilder, by putting up a 50.4 percent stake worth $3.6 billion at current market prices.

Okpo shipyard of South Korea's Daewoo Shipbuilding & Marine Engineering (DSME) is seen in Koeje island. Okpo shipyard of South Korea's Daewoo Shipbuilding & Marine Engineering (DSME) is seen in Koeje island of South Kyongsang province, about 470 km (292 miles) southeast of Seoul, May 17, 2005. REUTERS/Lee Jae-Won

The long-awaited sale is expected to attract a host of bidders, ranging from steel makers looking to lock in a big buyer of their product to conglomerates seeking to invest in a business whose profit is set to double this year to 667 billion won.

Foreign investors may also join local bidders’ consortia, although an outright sale to a foreign shipbuilder is unlikely as Daewoo operates a defense business, analysts said.

Energy and construction-focused conglomerate GS Group and the South Korean state pension fund have expressed interest in Daewoo Shipbuilding. Steel maker POSCO (005490.KS) and conglomerates such as Doosan Group and STX are also seen as potential bidders, analysts said.

The sale could fetch nearly 5 trillion won ($5 billion), analysts said, taking into consideration the company’s strong business outlook, and competition could drive the price tag even higher.

Daewoo Shipbuilding shares ended up 10.8 percent to 36,500 won on the news, having risen as much as 13 percent at one point. The wider market .KS11 ended up 0.3 percent.

Daewoo, the world’s third-largest shipbuilder by sales, competes with No.1 Hyundai Heavy Industries Co (009540.KS) and No.2 Samsung Heavy Industries Co (010140.KS). It was spun off from Daewoo Heavy, a part of the failed Daewoo Group.

It ended a creditor-led debt rescheduling program in 2001 and saw a sharp earnings recovery from last year on the back of lucrative vessel orders.

“Since the sale has long been delayed, the current share prices have not fully reflected the M&A premium,” said Cho In-karp, an analyst at Goodmorning Shinhan Securities.

“The deal looks attractive as Daewoo could generate 1 trillion won in annual pre-tax profit over the next several years. Even with the global economy slowing, top Korean companies are seeing orders continue coming in.”

Daewoo already has an order backlog that should keep its dockyards busy until mid-2011, analysts said.

State-run Korea Development Bank (KDB), Daewoo’s top shareholder, said in a statement it would name the lead managers for the sale and put the company up for auction. It said it expected to pick a preferred buyer around August.

KDB’s announcement comes after South Korea unveiled plans to privatize the state-run bank, which would require speedy disposal of its stakes in debtor firms such as Daewoo and Hyundai Engineering & Construction (000720.KS).

State institutions own 50.4 percent of Daewoo, with KDB holding 31.3 percent and Korea Asset Management Corp another 19.1 percent. The stake up for sale is worth 3.51 trillion won ($3.56 billion) at Wednesday’s closing price.

“KDB decided to start the sale process to recover investment funds in a timely manner and to transfer Daewoo’s management to a responsible investor who can contribute to the company’s long-term development,” the bank said.

($1=986.1 Won)

Editing by Marie-France Han and Louise Heavens

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