Kumho Industrial Co., construction and civil engineering services arm of South Korean conglomerate Kumho Asiana Group, won a lawsuit filed by Lehman Brothers International Ltd. demanding the construction company cover its 130 billion won ($111.9 million) put option cost.

The Seoul Central District Court on Friday ruled against Lehman Brothers International, the European subsidiary of Lehman Brothers Holdings Plc., which claimed Kumho Industrial pay 128.7 billion won cost for the put-option deal it had signed with financial investors when taking over Daewoo Engineering & Construction Co. (Daewoo E&C) in 2006.

To proceed with the lawsuit and win the case, Lehman Brothers International had applied for foreign insolvency procedure with the Seoul district court and received approval last month. It nevertheless lost the case.

When Kumho Industrial took over Daewoo E&C in December 2006, Lehman Brothers International invested about 240 billion won as financial investor under a put option deal with shareholders that allows them to buy Daewoo E&C shares at a price of 26,262 won per share and sell them at a higher pre-set price of 32,500 won per share in return for their investment in the take-over.

A put option gives financial investors the right to sell stocks and bonds at a pre-set price to strategic investors and lowers investment risk.

Financial investors including Lehman Brothers, however, suffered major loss in 2010 when Kumho Industrial entered a workout program in 2010 due to a liquidity crisis and Daewoo E&C shares plunged. Amid the struggle, Korea Development Bank and other creditors agreed to push forward the put option deal by promising financial investors to buy Daewoo E&C shares at a much lower price of 18,000 won per share than the pre-set price and to switch remaining debt back to equity.

Lehman Brothers, however, was excluded from the list of financial investors whose Daewoo E&C shares were purchased by KDB. In January 2010, the investor exercised its put option rights but with little signs of KDB implementing the share purchase, it filed a lawsuit against Kumho Industrial demanding return on the investment principal.

Kumho Industrial, however, fought back by submitting an agreement signed by Lehman Brothers in March 2010 on debt coverage and claimed part of it has been converted to Kumho Industrial equity.

By Kim Yoon-jin

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