KKR makes pre-IPO investment in Korean car parts makers in $940 mn deal

Private equity firm KKR & Co. has signed an agreement to buy a stake in a South Korean automotive parts maker and acquire a copper foil unit to be spun off from a South Korea’s leading business group, in transactions valuing both companies at 1.05 trillion won ($940 million).

KKR will purchase a 47% stake in a joint venture which LS Mtron Ltd., a machinery and car parts maker, is setting up to co-manage LS Automotive Corp., South Korea’s No.1 electronic auto components maker, according to a regulatory filing on July 27.

The deal puts the enterprise value of LS Automotive at around 750 billion won, including debt of 200 billion won. The venture, in which LS Mtron is to hold 53%, will retain the LS company name.

It is known that the parent LS Group has agreed to float the joint venture on the stock exchange later on to help KKR’s exit from the South Korean asset.

In case the planned initial public offering is withdrawn, they added drag-along and tag-along provisions, which force the other shareholder to sell their shares at the same time, to the agreement, according to investment banking sources.

The US buyout firm will also take the full ownership of the copper foil unit of LS Mtron for an enterprise value of 300 billion won, or 20 times the company’s 2016 operating profits. Copper foils are used in electric vehicle batteries.

The transactions with KKR will likely inject 600 billion to 700 billion won in fresh cash into LS Corp. The holding company of the LS Group had a debt to equity ratio of 200% at end-March, or 6 trillion won in debt based on consolidated balance sheets.

LS Group specializes in cables, nonferrous metal and industrial engineering since split off from the LG Group in 2003.

LS Automotive, wholly owned by LS Mtron, supplies automotive switches, relays and sensors to Hyundai Motor Corp. and other carmakers. It posted 62.8 billion won in operating profits last year against sales of 910.9 billion won. Its earnings before interest, taxes, depreciation and amortization is 113 billion won.

LS Mtron had supplied cooper foils to most of global lithium ion battery makers including Samsung SDI, LG Chem, Panasonic and Japan’s NEC.

The latest deal is KKR's first trillion-won-size deal in South Koreas since it sold Oriental Brewery back to Anheuser-Busch InBev NV in 2014. It also came on the heels of KKR’s third Asian fund closing at $9.3 billion in June.

Last year KKR bought Japanese auto parts maker Calsonic Kansei Corp. for 489.3 billion yen from Nissan Motor and public shareholders in its biggest deal in Japan.

By Chang Jae Yoo and Soram Jung

yoocool@hankyung.com