Shares of LIG Defense & Aerospace plunged after the Defense Acquisition Program Administration barred the company from bidding on government projects for two years. The sanction, the most severe available under South Korea's state contract law, is expected to disrupt the company's new domestic orders, souring investor sentiment as the market had feared.
LIG Defense & Aerospace closed at 498,500 won on the 21st, down 9.03% from the previous session, according to the Korea Exchange. Late on the 20th, the procurement agency announced it had imposed a two-year bidding ban on the company, which faces allegations that it paid hundreds of millions of won in bribes to an agency employee during a weapons development tender. Disclosing the outcome of the defense contract review committee's deliberations at night was an unusual step that appeared intended to underscore the government's determination to impose a strict penalty.
The bidding restriction takes effect five business days after the decision is formally conveyed. LIG Defense & Aerospace will therefore be unable to bid on projects ordered by public institutions for two years beginning on the 29th. Even after the ban expires, penalty points will apply to the company in bidding evaluations for three more years. The company plans to petition a court for a suspension of the measure as soon as it receives the formal decision on the 22nd. It signaled its intent to contest the penalty a day earlier, saying it regretted that a sanction had been imposed based solely on the indictment while legal proceedings were still underway.
Immediate attention is focused on the 1.9 trillion won ($1.3 billion) program to develop a long-range air-to-air missile for the KF-21 fighter. LIG Defense & Aerospace had ranked first in proposal evaluations for the systems integration portion of the program and was due to sign a final contract in December. If Hanwha Aerospace (012450.KS), the second-ranked candidate, picks up the systems integration work by default, it would effectively monopolize the Korean version of the Meteor missile program, adding it to the propulsion and other segments where it already ranked first.
The fallout extends further. A program to develop combat unmanned surface vessels is expected to gather pace next year, with about 610 billion won ($420 million) to be invested through 2036 to build the vessels with domestic technology. LIG Defense & Aerospace has developed the Haegeom series of unmanned surface vessels as a civil-military project since 2015, and was aiming to win the combat vessel development contract after delivering a reconnaissance unmanned surface vessel to the Navy next year.