KKR expected to buy 100% stake in Taeyoung Industry

Global private equity giant KKR & Co. Inc. is expected to take over Taeyoung Industry Corp., a cash cow of South Korea’s medium-sized business group Taeyoung Group speculated to be under financial stress.

According to sources in the investment banking industry on Tuesday, KKR is reportedly carrying out due diligence to acquire a 100% stake in Taeyoung Industry with an aim to complete the deal with a stock purchase agreement before the end of this year.

This would be the second deal between KKR and the Korean construction, media and logistics business group this year after the latter’s holding company TY Holdings Co. sold its corporate bonds worth 400 billion won ($296 million) with a coupon rate of 13% to the US investment firm in January.

The holding company injected the proceeds into the group’s mainstay construction business Taeyoung Engineering & Construction Co. (Taeyoung E&C) rumored to be in a liquidity squeeze due to high financing costs and stalled construction projects.

Taeyoung E&C’s real estate and investment assets were collateralized for the deal, with the collateral cap set at 120% of the secured loan of 400 billion won.

TY Holdings plans to use fresh funds from the sale of Taeyoung Industry to ease the speculated liquidity crunch at Taeyoung E&C. It is also said to plan other asset sales to quell concerns that the group’s flagship company could run out of money.

TAEYOUNG E&C UDNER FINANCIAL STRESS

The balance of the construction arm’s contingent liabilities as of the end of March amounted to 3.18 trillion won related to project financing, of which 38% are delayed real estate projects, according to NICE Investors Service, a Korean credit rating company.

The company’s net debt also snowballed to 591.8 billion won at end-March from 291.5 billion won at end-2021 due to asset-backed security purchases and cash loans worth about 210 billion won in total from October last year to March.

Headquartered in Ulsan, Taeyoung Industry is Taeyoung Group’s lucrative business, running grain silos, liquid cargo tank terminals and other logistics operations. It has a wide logistics network in Korea, covering the southeastern part of Korea, as well as Gyeonggi and Chungcheong Province.

It reported 9.5 billion won in operating profit in 2022 on sales of 39.4 billion won.

Taeyoung E&C Chairman Yoon Suk-mynn and his sister jointly hold a 60% stake in Taeyoung Industry – 32.34% and 27.66%, respectively – while TY Holdings owns the remaining 40%.

In a September statement, Taeyoung Group denied market rumors about the construction arm’s liquidity problems, saying that it is making groupwide efforts to support the company.

KKR DIVERSIFIES KOREAN PORTFOLIO

In recent years, KKR has been actively expanding its real estate and infrastructure portfolio in Korea.

In April, it agreed to buy Namsan Green Building in a central office district in Seoul for an estimated 250 billion won.

It has purchased other prime commercial buildings in Seoul, including Namsan Square, K Twin Towers and Centerfield.

In July, its Co-Chief Executive Joseph Bae visited Korea to meet with officials of the country’s top limited partners such as the National Pension Service (NPS) and Korea Investment Corp. (KIC), underscoring the global investment giant’s efforts to boost investment in the Asian country.

Write to Byeong-Hwa Ryu and Jun-Ho Cha at hwahwa@hankyung.com

Sookyung Seo edited this article.