Large South Korean conglomerate Kumho Asiana faces shortage of cash

Faced with a cash crunch, Kumho Asiana Group, one of the biggest conglomerates in South Korea, has decided to sell a controlling stake in its construction business to a state-owned bank for US$2.5 bln. Kumho group, whose businesses include petrochemicals and an airline, also put two other units Kumho Industrial (focused on construction) and Kumho Tire under creditor-led restructuring. In 2006, Kumho Asiana agreed to acquire Daewoo Engineering & Construction. Since then, it has been under financial strain because it agreed to buy back Daewoo shares held by financial investors at a price far above current market levels. It also bought the logistics firm Korea Express in 2008 followed by weak business performance and difficulty in fund-raising. This further intensified cash shortages at Korea Development Bank - the overall group, Kumho’s leading creditor. Kumho tried unsuccessfully to sell Daewoo Construction after facing a cash call of about 4 trillion won from investors who had helped finance the acquisition of the builder. Daewoo’s sale has now been officially withdrawn, and Korea Development Bank plans to buy 50% plus one share of Daewoo from Kumho through an investment fund arm. At the 18,000-won-per-share price suggested by the bank — a 41% premium over the closing price on Wednesday, the stake would be worth US$2.5 billion.
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