Private Equity Helps Korea Restructure in Boost for Loan Bankers

  • Merger and acquisition loan volumes more than doubled in 2015
  • Buyout firms sitting on $481 billion of cash slated for deals

South Korean bankers say an acquisition finance boom will extend into 2016 as global private equity firms build up their biggest cash pile in seven years.

The leading M&A loan underwriters say restructuring among Korea’s largest companies will drive deals after volumes more than doubled in 2015 to $8.2 billion. The pipeline is already healthy, with lenders eyeing potential business from at least 3 trillion won ($2.5 billion) of acquisitions planned by firms including Standard Chartered Private Equity Ltd.

Companies including Samsung Group are responding to a faltering economy by buying and selling assets, while others answer President Park Geun Hye’s call for depressed industries to restructure to avoid a crisis. The Bank of Korea trimmed its 2016 economic growth forecast to 3 percent last week amid Chinese market volatility and 12 straight months of falling exports. The world’s private-equity firms are sitting on $481 billion of capital slated for buyouts, levels unseen since 2009, according to Preqin Ltd.

“Acquisition financing has grown greatly with buyers, especially private equity firms, having tremendous financial resources amid the ample liquidity in the financial markets,” said Jang Seong Eun, deputy general manager of acquisition & leveraged finance at Shinhan Bank, a unit of the nation’s biggest financial group by assets. “Companies around the world are forced to find new growth drivers or reorganize their businesses in this economy. The trend will likely continue this year.”

South Korean firms racked up the biggest M&A binge on record last year, as the value of deals climbed 30 percent to $120 billion, according to data compiled by Bloomberg. For the finance backing them, the biggest underwriters were Shinhan Bank, Woori Bank and NH Investment & Securities Co. That helped boost total loan volumes by 37 percent to $41.5 billion, the highest since 2007.

Samsung Group, the nation’s most powerful chaebol, is offloading its less profitable units. The company said in October it will sell its chemical businesses to Lotte Group for about 2.8 trillion won after earlier last year selling stakes in its chemicals and defense businesses to Hanwha Group for 1.9 trillion won.

As the acquisition loan market grows, the popularity of private M&A debt funds has spread rapidly. At least 3.9 trillion won of them have been formed, with investors lured by returns almost double that of corporate bonds. Heungkuk Asset Management and NH-CA Asset Management were among those that set up funds.

‘Effective Weapon’

“Such loan funds offer a ready source of financing, acting like an effective weapon, facilitating competitive deal sourcing,” said Cho Si Hwan, a senior manager in Woori Bank’s M&A team in Seoul. “Increasing corporate restructuring, coupled with private equity funds’ continued active participation, will continue to fuel the market.”

Standard Chartered Private Equity was last month named as preferred bidder for Doosan Infracore’s machine tool business after offering 1.36 trillion won, while Mirae Asset Financial Group was favored to buy a stake in Daewoo Securities Co. in a deal that would create the country’s biggest brokerage by assets. Mirae has hired Shinhan Bank for potential financing for the acquisition, the company’s Seoul-based spokesman said last week.

January has so far seen messaging service Kakao Corp. offer to buy K-Pop streamer Loen Entertainment Inc. for 1.87 trillion won. Kakao is considering a mixture of cash, loans and shares to finance the deal, it said in a filing last week. A detailed funding plan hasn’t been finalized, the company’s Seongnam-based spokesman said on Wednesday.

E-Land Group is selling its hypermarket business Kim’s Club stores to focus on its core business, including global distribution, it said in a statement last month.

Biggest Deals

M&A loans were last year led by a 4.3 trillion won deal backing MBK Partners Ltd.’s $6.1 billion acquisition of Homeplus Co. from Tesco Plc. The second-biggest was a 1.9 trillion won facility for Seoul-based private equity firm Hahn & Co.’s acquisition of Halla Visteon Climate Control Corp.

“A few mega deals led the acquisition financing market last year,” said Kim Youn Soo, the head of investment finance at NH Investment. “We see a solid pipeline for this year with an increasing number of deals, driven by some large companies’ business restructurings and the government’s push for cleaning up zombie companies amid the economic slowdown.”

Before it's here, it's on the Bloomberg Terminal.