Major shareholders of Korea Aerospace Industries (KAI) will kick off an estimated KRW1.2 trillion (USD$1.05 billion) stake sale on Tuesday, but success is not assured, with just one potential bidder showing interest so far.
Korean Air Lines said it was considering bidding for the country's sole aircraft maker after KAI shareholders including Korea Finance offered to sell a combined stake of around 42 percent.
The stake on offer includes the respective 10 percent shares held by Hyundai Motor, Samsung Techwin and Doosan Group. Korea Finance will cut its holdings in the aircraft maker by 11.41 percent, while Korea Development Bank will sell its entire 0.34 percent stake.
The deal, if it happens, would be one of the few South Korean stake sales expected to fetch more than KRW1 trillion won this year.
Analysts are already casting doubt on Korean Air's ability to pay for the stake, with the country's largest airline saddled with a debt-to-equity ratio of more than 700 percent as of end-March.
The airline then posted an April-to-June net loss after its cargo business performed poorly, forcing Korean Air to consider diversifying into other segments such as aircraft manufacturing.
Korea Finance said KAI shareholders would accept letters of intent by August 16 and planned to accept final bids around October, with an eye to completing the sale by the end of the year.
As more than half of KAI's business is from the defence industry such as the manufacture and sale of fighter jets, the auction is subject to special rules that limit total foreign investor holdings to 10 percent or less unless the Minister of Knowledge Economy makes an exception.
A KoFC official said foreign investors currently own about 8 percent of KAI, leaving little room for additional overseas investment.
And because the offered stake includes state-run Korea Finance's holdings, the sale is subject to South Korean rules which state that a government stake auction must have two or more bidders to be valid.