This article was posted on the ChosunBiz MoneyMove (MM) site on Oct. 22, 2025, at 4:48 p.m.
Korea Electric Power Corporation (KEPCO) is encountering difficulties from the stage of selecting an advisory firm to acquire equity as it seeks to re-nationalize KEPID, which was privatized more than 20 years ago. Because the purpose of this transaction is to acquire a minority equity stake, advisory fees are small, and the stringent conditions for selecting advisers are being seen as a misstep.
On the 22nd, investment banking industry sources said KEPCO extended the period to select advisers for the acquisition of KEPID equity. An industry official said, "There were no bidders in the auction that closed the previous day, so it was canceled," adding that KEPCO decided to extend the bid submission period until early next month.
The reason the selection of an adviser, the first step in the acquisition process, is faltering is that the fee is stingy relative to the work. Although KEPCO is acquiring equity in KEPID, a mid-sized deal with a market capitalization in the 400 billion won range, the adviser's fee is confirmed to be only 40 million won.
Although deals for management control acquisitions and equity investments have been scarce recently, considering the personnel required, the compensation is deemed far too low. KEPCO requires the adviser to handle the entire deal process, including planning the equity acquisition, drafting, reviewing and supporting the signing of nondisclosure agreements, reviewing and negotiating acquisition terms, and drafting a memorandum of understanding (MOU) for the equity acquisition. It also requested support for accounting, tax and legal services related to major issues.
In typical deals, fees are paid divided into an upfront fee, a retainer fee and out-of-pocket expenses. Fees are paid to the adviser at each stage, such as submission of due diligence reports, signing of the share purchase agreement and deal closing. Industry sources estimate the adviser fee for this year's NXC deal, which selected a sell-side adviser, at about 10 billion won.
Analysts say the conditions for participating in the adviser selection bid are also problematic. KEPCO restricted participation in this adviser selection bid to small companies and small merchants only. This additional condition was not present in transactions being pursued by Korea Asset Management Corporation (KAMCO) and the Korea Deposit Insurance Corporation (KDIC) or Seoul Guarantee Insurance. A KEPCO official explained, "When the estimated price is below a certain scale, current law requires a limited competitive bid targeting small companies and small merchants."
Industry sources say that limiting bid participation to small companies and small merchants will make selecting an adviser itself difficult. An industry official said, "It will be hard to find small companies or small merchants with track records in buyout deals or minority equity transactions," adding, "Most securities firms and accounting firms cannot participate in the bid." Under current law, a small financial business must have average sales of 10 billion won or less, and a small merchant must have fewer than 10 regular employees.
KEPID, launched in 1990 as a 100% subsidiary of KEPCO, provides operation and maintenance services for power generation equipment at 16 power plants nationwide. It was privatized in 2003 when KEPCO sold equity to the Federation of Freedom. The Federation of Freedom currently holds 31% of KEPID's equity, and KEPCO is the second-largest shareholder with 29%. If KEPCO acquires just over 2% more equity, it could become the largest shareholder and exercise management control.
From KEPCO's perspective, selecting an adviser is essential because under the shareholders' agreement KEPCO cannot accumulate equity on the open market and therefore has no choice but to acquire the Federation of Freedom's stake. The Federation of Freedom's skeptical stance on selling 2% of its equity is also a problem. An industry official said, "An adviser needs to analyze and negotiate the appropriate acquisition volume, whether to reflect a management control premium, and pricing," adding, "With the bid canceled, it appears the process is blocked from the very first step."