Hyundai E&C Falls as Hyundai Group Signing Damps Hopes Deal May Collapse

Hyundai Engineering & Construction Co., South Korea’s biggest builder, tumbled in Seoul trading after Hyundai Group signed a preliminary agreement to buy a controlling stake, damping speculation the deal may fall apart.

The construction company fell 2.6 percent to close at 60,900 won. It earlier rose as much as 5.4 percent to 65,900 won after Hyundai Motor Group, which had made a competing offer, said Hyundai Group should be stripped of its preferred bidder status for the 35 percent stake because of funding concerns.

The shareholders offering to sell the stock today said they will set a deadline for Hyundai Group to provide a copy of a 1.2 trillion won ($1 billion) loan agreement and other information showing how it will pay for the stake. Hyundai Group may have to sell some of the builder’s most profitable units to fund the deal, analysts including Mirae Asset Securities Co.’s Byun Sung Jin have said.

“It’s up to Hyundai Group to provide transparent information that will help clear some of the concerns in the market,” said Seoul-based Byun. “We still can’t be certain that the talks will go smoothly.”

Hyundai Merchant Marine Co., Hyundai Group’s largest unit, plunged 7 percent, the biggest drop in almost two weeks, to close at 35,850 won. The shipping line has tumbled 20 percent since Hyundai Group was named preferred bidder for the Hyundai Engineering stake on Nov. 16. The group offered about 5.5 trillion won, two people familiar with the matter said on Nov. 16. That’s more than double the market price.

Natixis Loan

The shareholders have asked Hyundai Group to show it didn’t put up any collateral against the 1.2 trillion won loan, which was from Natixis SA, Ryu Jae Han, president of Korea Finance Corp., told reporters in Seoul today. The state-run agency, the largest shareholder in Hyundai Engineering, is among those selling stakes.

The shareholders will make an official request for more information, probably within the next few days, Ryu said. Hyundai Group will then have five working days to respond.

“If Hyundai Group doesn’t provide sufficient information within the given timeframe, the initial agreement may no longer be effective and the group could lose its status as the preferred bidder,” Ryu said.

Hyundai Group will do all it can to help ease passage of the deal, it said in a statement. It previously pledged to provide more details after signing the preliminary agreement. The selling shareholders, which include Korea Exchange Bank, made a second request for information last week after calling a first response “insufficient.”

The final deal may be signed in January, according to a statement from Korea Exchange Bank today.

Family Battle

The takeover battle has pitted Hyundai Group chairwoman Hyun Jeong Eun against her late husband’s brother Hyundai Motor Group head Chung Mong Koo. The automaking group split off from the main Hyundai Group in 2000, after Hyun’s husband was named heir over his elder brother.

Creditors seized control of Hyundai Engineering, previously the Hyundai Group’s flagship, in 2001 as the builder struggled with debts. These creditors are now selling their stakes.

Hyundai Motor Group will review today’s agreement before considering any further steps, said Executive Vice President Kim Bong Kyung. The company, parent of South Korea’s largest automaker, offered about 400 billion won less than Hyundai Group for the Hyundai Engineering stake, the people familiar said on Nov. 16.

To contact the reporters on this story: Kyunghee Park in Singapore at kpark3@bloomberg.net; Sookyung Seo in Seoul at sseo10@bloomberg.net

To contact the editor responsible for this story: Neil Denslow at ndenslow@bloomberg.net.

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