The so-called ‘stalking-horse’ bids introduced in Korea early this year have been useful in raising the chance of revival for companies under bankruptcy management.

In a stalking-horse agreement, a bidder with high interest is approached and is given the priority to make the first bid. The existence of a stalking horse can prevent other bidders from low-balling the offering.

According to the investment banking industry on Monday, mid-sized constructor Hyunjin Co. under court protection has been in talks with LDS Construction Co., an initial bidder. STX Construction Co., another constructor under court receivership, is said to be bargaining terms with an unnamed builder. The two companies hope to finalize sale within the first half of this year by signing an official contract by the next month.

The two constructors have been put up for competitive sales this year, but the court failed to find adequate buyers. Normally, when a bankruptcy sale falls through, the court would have to start over the sale process from the beginning after a few months. But fortunately the bankruptcy courts have already found stalking-horse bidders in case the auctions fall through.

The stalking-horse bid is one of many reorganization options experimented by a new and bigger Seoul Bankruptcy Court that replaced the Seoul Central District Court’s bankruptcy division in March. The court has been trying to come up with various turnaround mechanisms to save companies from going completely under. “We plan to try out various measures to help companies’ recovery,” said an official from the court.

By Yoo Tae-yang

[ⓒ Pulse by Maeil Business Newspaper & mk.co.kr, All rights reserved]