Samsung Securities Report
The Daewoo Shipbuilding & Marine Engineering Seoul office as of July 19. / Photo by Mun Ho-nam munonam@
[Asia Economy Reporter Myunghwan Lee] As the government and the Korea Development Bank are reportedly planning to sell Daewoo Shipbuilding & Marine Engineering (DSME) to Hanwha Group in a block sale, securities firms have analyzed that if DSME's capital structure can be improved upon the completion of the sale, it would be viewed positively. However, they also foresee significant uncertainty due to the complex positions of stakeholders involved in the sale.
On the 26th, Samsung Securities stated, "If DSME's capital structure can be improved during the sale process, it can be evaluated positively," reflecting this analysis.
According to the government and financial authorities on the 26th, the government held an emergency industry and economic ministers' meeting at the Korea Export-Import Bank in Yeouido-dong, Yeongdeungpo-gu, Seoul, to discuss the sale plan for DSME. It is reported that Kang Seok-hoon, chairman of the Korea Development Bank, presented a plan for handling DSME, including the option to sell it to Hanwha Group. If the sale plan is finalized, the Korea Development Bank's board of directors will convene in the afternoon, followed by a briefing on the sale by Chairman Kang Seok-hoon after the board's resolution.
Previously, Hanwha Group was selected as the preferred negotiator during the first sale attempt of DSME in 2008, but the sale was canceled in 2009. Samsung Securities pointed out that as the sale was delayed, DSME's capital was significantly impaired due to rising steel prices. As of the end of the second quarter, DSME's capital stood at approximately 1.5 trillion KRW, down 30% compared to the same period last year. This amount is even less than the 2.3 trillion KRW in perpetual bonds included in the capital, indicating the need for efforts to improve the financial structure, according to Samsung Securities.
Samsung Securities' analysis suggests that if DSME's capital structure improves during the sale process, it can be viewed positively. They also evaluated that the sale would be favorable for DSME in terms of establishing long-term order strategies and risk management.
However, Samsung Securities advised that it might be premature to purchase DSME shares based solely on expectations related to the sale. This is because the shareholder value of existing shareholders is bound to change significantly depending on the sale method. They also diagnosed that efforts to improve the capital structure could greatly dilute the shareholder value of existing shareholders depending on the method and timing.
Samsung Securities foresees that all matters related to the sale could act as uncertainties from the shareholders' perspective. Researcher Han Young-soo of Samsung Securities noted, "Assuming that the stakeholders involved in the DSME sale (Korea Development Bank, workers, local communities, etc.) are diverse and are presenting differing claims regarding the sale, the sale process could take longer than expected."
Meanwhile, DSME's stock price has been on the rise since the sale news broke. As of 11:40 a.m. on the day, DSME was trading at 25,100 KRW, up 14.09% (3,100 KRW) from the previous trading day. In contrast, Hanwha, mentioned as the acquiring party, was trading down 2.92% (800 KRW) at 26,600 KRW compared to the previous day. Other Hanwha Group affiliates such as Hanwha Aerospace (-8.64%), Hanwha Solutions (-4.33%), and Hanwha Systems (-3.77%) also experienced declines in their stock prices.
© The Asia Business Daily(www.asiae.co.kr). All rights reserved.
