22 October 2003 03:56 [Source: ICIS news]
SINGAPORE (CNI)—South Korean KP Chemical's mergers and acquisitions (M&A) adviser KPMG has started sending out the information memoranda (IM) for the sale of the company’s assets – one week behind schedule, a source close to the company told CNI.
The company’s adviser now hopes to receive indicative offers from prospective buyers by the second week of November instead of end-October in what will be the fourth round of bidding for KP’s assets. KPMG will try to have the final offers in place by end-December
In a new revelation, a source close to the deal told CNI that the company's liabilities, as of 2002, were estimated at Won693bn ($590m/Euro508m) and its total asset value is said to be Won1.15trn, with a debt-to-equity ratio of 152%.
However, the new M&A adviser may have an uphill task as it may have to get the creditors to compromise on their expectations to attract fresh prospective buyers.
KP Chemical's creditors are refusing to budge from their efforts to obtain book value for the assets of the beleaguered paraxylene (PX), purified terephthalic acid (PTA) and polyethylene terephthalate (PET) resin producer.
"One would have thought after three rounds of failed bidding, the creditors would have lowered their expectations. However, they are refusing to move from an attempt to obtain $800-$1bn for KP - equivalent to its book value," a source had said.
He disclosed the price being sought by creditors was around $400m more than was offered by bidders in the third round, which ended in June of this year. Efforts to sell the company stretch back to December 2001.
A source close to KPMG declined to comment on these rumours, but did confirm that the financial adviser was working towards lowering the expectations of lenders that were still 'too high'.
The root cause of the creditors' reluctance to lower their expectations was the desire to avoid having to write off any debt, the source close to the talks added.
"Nobody among the lenders wants to take the potentially career-damaging decision of recommending a write-off," added this source.
He said that the main lender to KP, Woori Bank, was the product of a bank merger which took place three years ago. This had complicated and therefore slowed down the decision-making process at the bank because there were 'two family trees' involved in its management.
However, the creditors, which total 47 and also include the Korea Development Bank, Kookmin Bank and the Korea Exchange Bank, did stomach a debt write-off when KP was split from the Kohap Corp on 28 December as part of a debt-restructuring plan. The size of the write off has not been disclosed.
Earlier this month, Reliance Industries confirmed for the first time that it took part in the third round and that it intends to participate in round four.
The apparent intransigence of creditors could be bad news for Reliance which had said it was attempting to 'educate' the lenders to lower their expectations.
Although India’s Reliance Industries Ltd (RIL) has confirmed its interest in the fourth round of bidding, sources close to the deal said that the possibility of other old contenders such as Mitsubishi Chemical and South Korean hat-maker YoungAn still being in the picture this time was low.
Mitsubishi may no longer be interested in KP because of capacity expansions at Sam Nam Petrochemical. Sam Nam, another South Korean PTA player, is owned by Sanyo Chemical (40%), Mitsubishi (40%) and LG Caltex Oil (20%). Sam Nam's capacity was raised by 400 000 tonne/year to 1.5m tonne/year in April this year.
In addition, there were unsubstantiated rumours last week that another bidder, understood to be South Korean, was showing a 'background interest' in KP.
The source added that there was no political pressure for a swift divestment of KP because, unlike Hyundai Petrochemical, efforts to restructure the company are not viewed as a litmus test of South Korean corporate sector reform.
There is also, apparently, concern at KP that some of the companies which have already taken part in the bidding process are not serious about their interest.
"The due diligence process has involved opening up the data room to scrutiny, providing very commercially sensitive information on, for instance, raw-material costs, finished product pricing and utilities costs. Getting access to this data room is thought to be the real motive behind some of the bids," said a third source.
While Kohap retained some synthetic fibre operations during the split, all of the petrochemical assets were transferred to KP. KP's capacities comprise 700000 tonne/year of PX, 1.5m tonne/year of PTA and 200000 tonne/year of PET resin.
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