Keppel to buy waste disposal firm in its largest Korean deal

Singapore-based Keppel Infrastructure appears set to buy South Korea’s leading waste management and recycling company EMK Co. for around $600 million, in what would be its largest-ever transaction in the country.

The infrastructure arm of Keppel Corp. has been named the preferred buyer of EMK and its eight subsidiaries by a consortium of IMM Investment Corp. and state-run Korea Development Bank (KDB), according to sources familiar with the matter on Tuesday.

In a deal valued at slightly less than 800 billion won ($611 million), EMK is one of the few major Korean waste treatment companies left up for grabs, after KKR & Co. and South Korea's SK Group snapped up leading companies in the industry in 2020.

The value is less than the market estimate of 1 trillion won since the IMM-led consortium excluded EMK’s core cash cow Shindaehan Refined Fuel Co. from the deal.

Keppel placed a higher offer than KKR-backed Ecorbit Co., formerly known as TSK Corp., the other final bidder. It is expected to sign a definitive agreement for the purchase as early as next week.

Keppel plans to bulk up EMK, which stands for Eco Management Korea, through bolt-on acquisitions of other waste treatment companies.

Keppel had shown interest in other South Korean sewage and waste disposal companies when they came on the market. Thanks to the industry’s high entry barriers and low sensitivity to economic cycles, they have been coveted assets for both strategic and financial investors.

In 2020, Keppel lost to SK Ecoplant Co., formerly SK E&C Co., in a 1 trillion won deal to buy South Korea’s biggest waste management firm EMC Holdings Co. KKR was among the final bidders for EMC as well.

Combined with earnings form EMK’s largest unit Shindaehan excluded from the transaction, EMK’s operating profit more than halved to 5.5 billion won in 2021, compared to 14.3 billion won the year previous.

EBITDA decreased to 35 billion won versus 30 billion won during the same period, while revenue increased 5% to 135.3 billion won.

Shindaehan, not included in the package deal, boasts various waste management systems ranging from wastewater to waste oil and specified waste.

Credit Suisse and EY Korea handled the transaction.

KKR'S INVESTMENTS IN SOUTH KOREA

KKR was the most aggressive investor in South Korea’s waste treatment market. In 2020, the US private equity firm became Ecorbit’s No. 2 shareholder after purchasing a 37.4% stake in the Korean sewage and wastewater treatment firm for 440.8 billion won.

The same year, KKR bought two other Korean waste management firms for a combined 875 billion won.  

IMM’S DIVESTMENT AND NEW INVESTMENTS

The upcoming exit will mean a return of almost double IMM's investment in five years.

Back in 2017, it bought out EMK for 390 billion won from JPMorgan Asset Management jointly with KDB and made follow-on acquisitions of smaller-sized players in the country. They are now controlled by EMK.

Meanwhile, IMM on Monday announced its investment of 20 billion won in Okestro Co., a Korean cloud-based software startup. It valued Okestro at 150 billion won in the latter’s first funding from an outside investor.

The deal marked IMM’s first investment in the cloud service provider, for which it tapped into its ninth infrastructure fund that closed at 620 billion won in November 2021.

The vehicle also purchased a 49% stake in GS Power Co., the country's second-largest combined heat and power generator, for 1 trillion won in December 2021.

Seoul-based IMM targets startups and infrastructure assets.

Write to Chae-Yeon Kim at why29@hankyung.com
Yeonhee Kim edited this article.