Tesco Plc agreed to sell its South Korean business to a group led by private-equity firm MBK Partners Ltd. for 4 billion pounds ($6.1 billion), the U.K. grocer’s first major disposal as it seeks to ease the strain on its debt-laden balance sheet.

The purchase will reduce borrowings by 4.23 billion pounds, Tesco said in a statement Monday. The group includes the Canada Pension Plan Investment Board, Public Sector Pension Investment Board and Temasek Holdings Pte.

The sale represents a landmark for Tesco Chief Executive Officer Dave Lewis in his efforts to revive the struggling retailer. By exiting its largest international business, the Cheshunt, England-based company is taking a key step in trimming a debt pile of about 21.7 billion pounds that has led to its credit ratings being cut to junk. Further divestments may follow, with Tesco also exploring the sale of its Dunnhumby data-analytics business.

“Completing this disposal is very positive for Tesco’s balance sheet,” David Payne, an analyst at Nomura Holdings Inc., said by phone. “Investors have been getting more nervous about a possible rights issue at Tesco.”

Tesco will book a loss of about 150 million pounds from the sale. Taxes and fees associated with the deal will reduce the net cash proceeds to about 3.35 billion pounds, to be paid in a combination of U.S. dollars and Korean won. The purchase values the unit’s equity at about $4.9 billion, MBK said.

Cantor Fitzgerald analyst Mike Dennis called the sale “dilutive and
disappointing.”

Paying Up

The grocer plans to use most of the money to pay off debt over the next 18 months. The company also said it will be able to consider investment opportunities such as the “selective” purchase of some of the store properties it leases in the U.K.

Tesco shares fell 0.6 percent to 184.90 pence as of 10:06 a.m. in London.

The acquisition gives the MBK-led group a discount store chain that’s second only to E-Mart Co. in Korea, with 1,075 outlets generating annual revenue of more than $8 billion. E-Mart, part of the family-run Shinsegae Group, estimates it had 29 percent of the market last year, followed by Homeplus’s 25 percent and Lotte Mart’s 16 percent.

“They are selling the family silver,” said Bryan Roberts, an analyst at Kantar Retail. “It’s their biggest, most profitable and most successful international business.”

The transaction would be Asia’s biggest-ever leveraged buyout deal and the largest such purchase in South Korea, surpassing Anheuser-Busch InBev NV’s $5.8 billion acquisition last year of Oriental Brewery Co. The MBK group entered exclusive talks with Tesco last week, beating a rival bidding consortium that was led by KKR & Co., people familiar had said.

The transaction values the business, including net debt, at 9.1 times last year’s adjusted earnings before interest, tax, depreciation and amortization. That’s above the 7.3 times median multiple for retail-industry deals in developed Asian markets over the past five years, according to data compiled by Bloomberg.

MBK, which has $8.2 billion under management, is the largest independent private equity firm in North Asia. Its investments include the $870 million purchase of Nepa Co., one of Korea’s biggest outdoor apparel companies, and $471 million acquisition of Komeda Co., one of Japan’s largest coffee chain operators.

“Homeplus is an attractive investment for CPPIB as it provides us with access to one of the largest retail markets in Asia,” Pierre Lavallée, senior managing director and global head of investment partnerships at Canada Pension Plan Investment Board, said in a statement. Temasek is a “steadfast and active investor seeking opportunities,” said spokesman Jeffrey Fang.

Sunday Hours

Because of a national restriction on Sunday opening hours for hypermarkets, Homeplus’s same-store sales have been in decline since 2011, dropping 4 percent last year. The chain swung to a pretax loss of 131 million pounds in the year ended Feb. 28 from a profit a year earlier, while revenue
shrank to 5.36 billion pounds amid weak household spending.

Tesco joins Wal-Mart Stores Inc. and Carrefour SA among global retailers pulling out of the country. Shinsegae Co. bought Wal-Mart’s local network in 2006, while outlets acquired by Tesco from E. Land Group in 2008 were formerly owned by Carrefour.

By selling Homeplus, Tesco CEO Lewis will be able to devote more attention to turning around the company’s fortunes at home. While it remains the market leader in the U.K., the company’s sales are falling amid a price war fueled by the expansion of German discounters Aldi and Lidl.

Tesco entered the Korean market in 1999 under then-CEO Terry Leahy with a 130 million-pound investment in a joint venture with Samsung Group. The U.K. grocer initially held an 81 percent stake, before buying Samsung out of the venture in stages.

Tesco said it expects to complete the sale in the fourth quarter. The grocer said it retains “strong” businesses in southeast Asia with good prospects for long-term growth.

HSBC Holdings Plc and Barclays Plc advised Tesco on the sale, while Citigroup Inc. and Deutsche Bank AG advised MBK.

— With assistance by Paul Jarvis, Klaus Wille, Jonathan Browning, and Joyce Koh