SEOUL/PARIS South Korea's KEPCO (015760.KS), the likeliest suitor for Toshiba Corp's (6502.T) troubled nuclear business, is holding off from making an approach because of question marks over the scale of damage at the unit and political uncertainty in both South Korea and the United States, people with direct knowledge of the matter say.
Japanese TV-to-rail conglomerate Toshiba has been battered by a $6.3 billion hit from overruns in the nuclear business and has widened a probe into governance failures at its U.S.-based unit, Westinghouse. It is now considering a sale.
State-controlled Korea Electric Power Corp (KEPCO), one of few utilities with global nuclear ambitions, has developed its own technology and led a consortium in 2009 that won a contract to build four reactors in the United Arab Emirates.
Unlike Westinghouse and France's Areva (AREVA.PA), whose new third-generation reactor models have faced years of delays and big cost overruns, KEPCO has managed to build its reactors abroad on time and to budget.
This positions the Korean firm as a major new player in nuclear reactor manufacturing at a time when Westinghouse and Areva, the two leading OECD nuclear firms, are struggling.
KEPCO aims to build six more reactors abroad by 2025, targeting markets like Britain and South Africa.
But the utility, with $44.6 billion of debt as of December 2016, is in no rush to acquire Toshiba's business, the people said, as it needs clarity on the potential Westinghouse baggage - in terms of liabilities, but also intellectual property.
That could mean months, or even years, of waiting, one said.
"We are monitoring the situation and nothing has been made official," a KEPCO spokesman said.
More pressingly, domestic uncertainty after the impeachment of South Korea's president has made it tougher to secure political backing for a risky nuclear deal.
One official involved in the matter said KEPCO and Korea Hydro & Nuclear Power Corp (KHNP) could not move without state support: "The project has a chance of backfiring on us as everything is unpredictable, so it's a hot potato."
And in the United States, there is little clarity over nuclear policy under President Donald Trump, and several key positions are vacant.
One senior industry source said any move by KEPCO could require pre-approval by the U.S. government - complex even if South Korea is likely one of few palatable options.
"Without key (U.S.) appointments, the question is to what extent it can be discussed," one of the sources said, adding that any deal for Westinghouse would have to be discussed at government level.
KEPCO said earlier this week it was in talks to buy a stake in the Toshiba-Engie British nuclear joint venture NuGen, but on Westinghouse it has said only that it would consider the option.
Yet KEPCO has been widely seen in the industry as the potential winner from woes at Westinghouse, which is struggling to recover from crippling cost overruns at two U.S. projects and the ill-fated purchase of a nuclear plant construction firm.
Parent Toshiba is probing the unit after a whistleblower accused some managers of exerting "inappropriate pressure".
Westinghouse is weighing its options, including filing for Chapter 11 protection from creditors - a move that could clarify matters for potential buyers, but will also mean a lengthy process that could last years, as with French utility EDF's (EDF.PA) takeover of Areva's reactor business.
Under a government-led recapitalization and restructuring of Areva, the French state is effectively nationalizing Areva's liabilities related to a troubled reactor new-build project in Olkiluoto, Finland and to the manufacturing problems and falsifications at Areva's foundry unit Creusot Forge.
Ring-fencing Areva's liabilities will allow EDF, one of the main customers, to buy the healthy reactor construction and services business, while Areva’s nuclear fuel business has been split off in a separate business unit.
Industry experts say that carving out Westinghouse’s profitable nuclear fuel and reactor services business and selling parts to another nuclear group would be easier than trying to sell all of Westinghouse, including its liabilities.
But it could take years to set up the complex legal structures needed for this and to get the green light from creditors and regulators.
The Areva-EDF deal was agreed in July 2015, after months of negotiations. Nearly two years later, it is still not finalised.
(Reporting by Jane Chung in SEOUL and Geert De Clercq in PARIS; Writing by Clara Ferreira Marques; Editing by Ian Geoghegan and Neil Fullick)