LIG Group Auctioning Defence Unit Stake

South Korea’s LIG Group is auctioning up to 49 percent stake in its unlisted defence unit in a deal that could raise up to $400 million, writes Reuters. The auction is being pitched to private equity firms and strategic investors, according to sources.

Reuters – South Korea’s LIG Group is auctioning up to 49 percent stake in its unlisted defence unit LIG Nex1 in a deal that could raise as much as $400 million, according to sources with knowledge of the matter.

The sources said LIG Group has hired Citigroup for the sale of a stake in LIG Nex1, which makes anti-submarine and cruise missiles as well as weapons systems. The auction is being pitched to private equity firms and strategic investors, they said.

A holding company of LIG Group, which runs businesses ranging from finance to construction, currently owns 100 percent of LIG Nex1.

One of the sources said the stake sale was part of the group’s efforts to secure more funds, after its midsize construction unit LIG Engineering & Construction filed for court receivership last year.

The sources were not authorised to talk to the media. Citi and LIG Nex1 declined to comment.

OPERATING PROFIT

While some private equity firms are not able to invest in military-related assets, Carlyle Group and Morgan Stanley’s private equity arm in Asia do have investments in related assets.

Morgan Stanley is already an investor in Rotem, which is Korea’s monopoly maker of military tanks and rolling stock for subways, locomotives and high-speed railcars.

The firm partnered with Hyundai Motor Co which continues to hold a majority stake. Morgan acquired a minority stake in that company of around 22 percent in 2006 from Hanjin Heavy Industries Co.

A recent regulatory filing shows that the unlisted LIG Nex1 posted 44 billion Korean won ($39 million) of operating profit in 2010, versus 41 billion won in 2009.

Local media reported last year that LIG Nex1 was developing an anti-submarine missile to deploy on South Korea’s Aegis destroyers, and beef up the country’s defences. The Hongsangeo missile has been dubbed a “submarine killer” and is seen as a key strategic weapon to deter North Korean submarine infiltrations, according to the reports.

LIG Nex1 also mass produces South Korea’s cruise missile, the Hyunmu-3, a missile with a 1,500-kilometre range. ($1 = 1126.2750 Korean won) (Editing by Muralikumar Anantharaman)