June 3 (Bloomberg) -- Affinity Equity Partners Ltd., the Hong Kong-based buyout firm that manages about $4 billion, plans to buy a stake in KKR & Co.’s Oriental Brewery, two people with knowledge of the matter said.

Affinity may pay as much as $400 million to become the second-biggest shareholder of the Korean brewer, one of the people said, declining to be identified because talks are confidential. KKR, the private-equity firm run by Henry Kravis and George Roberts, agreed to buy Oriental Brewery for $1.8 billion from Anheuser-Busch InBev NV last month.

Buying a stake in South Korea’s second-biggest beermaker would mark Affinity’s fourth investment in an Asian consumer company and may be its biggest acquisition since being spun off from UBS AG’s regional private equity arm in 2004. Three of those investments are in South Korea, where consumer confidence rose to the highest in almost two years in May.

“Oriental Brewery would be a good investment over time once the economy really picks up, given its strong sales network,” said Cho Joon Hyuk, a Seoul-based fund manager at NH- CA Asset Management Co., which manages the equivalent of $1.2 billion in equities. “Investors will be able to reap profits when they sell the company again after a few years.”

KKR, which has said it will fund at least 40 percent of the Oriental Brewery purchase through equity, may invite other investors to buy stakes in the company, one of the people said. The firm plans to remain majority shareholder, the person said.

Beer Sales

Peter McKillop, a New York-based spokesman for KKR, declined to comment. Affinity Chairman Tang Kok Yew didn’t return phone calls seeking comment.

Oriental Brewery’s beer sales by volume rose 6.1 percent in 2008, helped by growth of at least 10 percent in its Cass brand, AB InBev said in its 2008 annual report. That growth rate was more than double the South Korean market’s, the Belgian brewer said, helping it win market share from rival Hite, the only other Korean producer.

Korea’s household sentiment index climbed to 105 last month from 98 in April, the highest level since the third quarter of 2007. The nation’s stock index has risen 26 percent this year as record-low borrowing costs and fiscal stimulus start to drive a recovery in Asia’s fourth-largest economy.

Affinity bought Himart Co., the leading consumer electronics retailer in South Korea, in April 2005. Five months later, it acquired cosmetic company The FaceShop, also in South Korea. Affinity bought control of Australian shoe and clothing retailer Colorado Group Ltd. in a $343 million public takeover in November 2006.

Higher Offer

Affinity, which focuses on leveraged buyouts and controlled investments, has also made investments in China, Singapore, Hong Kong and Thailand, according to its Web site. The firm manages funds and assets of about $4 billion.

KKR established a $4 billion fund focused on Asia investments in 2007 and the Oriental Brewery purchase was the firm’s first transaction in Korea.

AB InBev agreed to sell its Oriental Brewery unit to KKR last month because it needs the money to pay debt it accumulated in the merger that made it the world’s biggest brewer. The acquisition price is equivalent to about nine times the Korean beer company’s earnings before interest, taxes, depreciation and amortization, people familiar with the matter said.

The Leuven, Belgium-based brewer turned down a higher offer from Lotte Group of about $2 billion and favored KKR partly because the New York buyout firm offered AB InBev the right to reacquire the Korean unit five years later, the people said.

The pre-determined price of buying back the unit would be equivalent to 11 times Oriental Brewery’s EBITDA, the people said. AB InBev said it will “continue its relationship” with Oriental by granting exclusive licenses to distribute brands including Budweiser, Bud-Ice and Hoegaarden in South Korea.

To contact the reporter on this story: Cathy Chan in Hong Kong at Kchan14@bloomberg.net

Last Updated: June 3, 2009 01:02 EDT