Doubts grow over HDC’s bid for Asiana

The Korea Times - - BUSINESS - By Nam Hyun-woo [email protected]­re­atimes.co.kr

Doubts are grow­ing over a bid by Hyundai De­vel­op­ment Com­pany (HDC) to ac­quire Asiana Airlines, adding more un­cer­tainty over the con­struc­tion firm which has been strug­gling with the slug­gish con­struc­tion mar­ket, ac­cord­ing to in­dus­try an­a­lysts Wed­nes­day.

Some say the bid is risky, as HDC’s port­fo­lio of home con­struc­tion and leisure fa­cil­ity de­vel­op­ment has lit­tle in com­mon with the air­line busi­ness and in­vestors are show­ing a harsh re­sponse to the bid.

Ac­cord­ing to HDC, it has formed a con­sor­tium with Korea’s largest bro­ker­age, Mi­rae As­set Dae­woo, and joined the pre­lim­i­nary bid­ding for the cash-strapped carrier.

The com­pany said it de­cided to par­tic­i­pate in the bid­ding af­ter con­sid­er­ing the po­ten­tial syn­ergy with its ex­ist­ing busi­nesses.

HDC has been ex­pand­ing its port­fo­lio re­cently to cover ho­tel, re­sort and duty free busi­nesses. If the com­pany ac­quires Asiana Airlines, those busi­nesses can cre­ate syn­ergy and lower the com­pany’s high re­liance on the con­struc­tion mar­ket. The com­pany also had abun­dant cash and cash­able as­sets, amount­ing to 1.6 tril­lion won, at the end of June.

How­ever, an­a­lysts showed a neg­a­tive re­sponse to the builder’s de­ci­sion, say­ing con­struc­tion has lit­tle to do with airlines.

“HDC’s Asiana Airlines bid does not cor­re­spond to the com­pany’s strat­egy to di­ver­sify its port­fo­lio,” KTB Se­cu­ri­ties an­a­lyst Kim Sun-mi said. “By na­ture, an air­line’s busi­ness per­for­mance fluc­tu­ates and has lit­tle in com­mon with HDC’s de­vel­op­ment busi­ness.”

“The com­pany has rich op­por­tu­ni­ties for in­vest­ment in so­cial over­head cap­i­tal and a slew of other de­vel­op­ment busi­nesses, but de­cided to join the bid­ding for Asiana Airlines, which could be re­gret­table.”

Ap­par­ently, in­vestors agree with Kim’s as­sess­ment. On Tues­day, when the Asiana bid was re­ported, HDC’s share ended at 32,650 won, shed­ding 9.43 per­cent from a day ear­lier. It also showed a down­turn Wed­nes­day, de­clin­ing 0.77 per­cent from the pre­vi­ous day to end at 32,400 won. “The com­pany’s main busi­ness of con­struc­tion, which is fac­ing a gloomy out­look, has lit­tle in com­mon with airlines,” KB Se­cu­ri­ties an­a­lyst Chang Moon-joon said.

“With ad­di­tional un­cer­tain­ties stem­ming from the bid weigh­ing on the com­pany, its shares will likely stum­ble for a while. A re­bound can be ex­pected if the bid fails.”

An­a­lysts’ and in­vestors’ doubts are stem­ming from the carrier’s huge debt.

The en­tire deal is val­ued at be­tween 1.5 tril­lion won and 2 tril­lion won, but Asiana’s to­tal debt stood at 9.6 tril­lion won at the end of the first half of the year. Since the buyer has to shoul­der this, pre­lim­i­nary bid­ding that closed Tues­day was rel­a­tively low key, with­out the par­tic­i­pa­tion of con­glom­er­ates such as SK, GS or Han­wha.

“If HDC pur­chases Asiana, the com­pany can pur­sue syn­ergy be­tween the carrier and its duty free busi­ness, but this alone is un­likely to com­pen­sate for the carrier’s huge debt and un­sta­ble free cash flow,” KTB’s Kim said.

For the sale, Kumho En­gi­neer­ing & Con­struc­tion, Asiana Airlines’ hold­ing firm, will put its 31 per­cent in the carrier up for sale and the carrier will is­sue new rights for the buyer.

Af­ter the pre­lim­i­nary bid­ding, Kumho will cre­ate a short­list by the end of Septem­ber. The main bid is sched­uled to pro­ceed in Oc­to­ber. The com­pany is ex­pected to start ne­go­ti­at­ing with a pre­ferred bid­der in Novem­ber.

Chung Mong-gyu HDC Group chair­man

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