LIG Defense & Aerospace (079550.KS) tumbled more than 14% in intraday trading on the 21st after the government decided to bar the company from bidding on state contracts for two years, raising concerns that the defense contractor will face constraints in winning new domestic orders.
As of 10:36 a.m., the stock traded at 467,500 won, down 80,500 won, or 14.69%, from the previous session, according to the Korea Exchange.
The Defense Acquisition Program Administration convened its defense contract review committee the previous day and decided to impose a 24-month bidding restriction on LIG Defense & Aerospace, the maximum penalty under the state contract law. The move follows a bribery and cost-fraud case that prosecutors announced in August. The agency said it took into account that bribes the company allegedly provided to an employee exceeded 300 million won and that the misconduct was carried out deliberately over an extended period.
Investors are weighing the impact of the sanction on new orders and medium- to long-term earnings. Analysts said the penalty could affect the development program for a long-range air-to-air missile for the KF-21 fighter jet, a contract scheduled to be awarded late this year. LIG Defense & Aerospace had ranked first in the proposal evaluation for systems integration, the core portion of that program.
The possibility of additional sanctions is another burden. Prosecutors investigated bribery allegations tied to six defense programs, including a counter-drone system for small unmanned aircraft. The latest penalty relates to the counter-drone program, leaving open the possibility of follow-up sanctions on the remaining programs.
The bidding ban does not automatically terminate existing contracts, however, and it does not apply directly to overseas export deals. If a court grants the company's request for a suspension of enforcement, the restriction would be put on hold, allowing the company to participate in new programs.
LIG Defense & Aerospace said it will contest the sanction through legal action. "We regret that a sanction was imposed based solely on the fact of indictment while legal proceedings are still underway," the company said. "We will file for a suspension of enforcement and take all measures necessary to ensure there is no disruption to our business."
