KKR eyeing South Korean waste disposal firm valued at $645 mn

KKR & Co. is preparing to join the race for a South Korean industrial and medical waste treatment company valued at about 800 billion won ($645 million), which Hong Kong-based private equity firm Anchor Equity Partners is seeking to exit in four years, according to investment banking sources.

Anchor Equity has kicked off the sale of a full stake in unlisted ESG Co. Ltd. and 77.84% of one of the company’s seven units, ESG Cheongwon Co. Ltd. It plans to choose a preferred buyer next month, with Citigroup Global Markets managing the sale.

To join the auction, KKR has agreed to borrow 370 billion won via Hana Bank and Mirae Asset Daewoo Co. Ltd.

Specifically, it will raise 300 billion won in senior debt at a yield of between 4.5% and 5.0%, and mezzanine debt of 70 billion won at a yield of between 6.5% and 7.0%, the sources said on May 21.

Last year, the US private equity firm failed to secure buyout deals in South Korea.

Several big-name infrastructure investment companies are also preparing to make bids for ESG, lured by the growth potential of the medical waste treatment market. But sources declined to identify them.

The estimated value of 800 billion won represents more than 20 times trailing EBITDA of ESG.

Anchor Equity paid 180 billion won to buy ESG Cheongwon in 2016 and made bolt-on acquisitions of medical waste treatment firms in South Korea in following years to form the ESG Group.

Of the 13 medical waste treatment facilities in the country, four belong to ESG.

OTHER WASTE DISPOSAL FIRMS ON THE MARKET

The auction for ESG comes on the heels of three other waste disposal companies in South Korea up for sale by Macquarie and Affirma Capital.

Macquarie Korea Opportunities Management Ltd. has put 59% of Korea Environment Technology Co. Ltd., or Koentec, on the market, in a deal worth an estimated 500 billion won. It also has launched the sale process of Saehan Environment Co. Ltd. in which it owns 100%.

Affirma Capital has offered its full ownership of EMC Holdings Co. Ltd. that handles sewage and wastewater treatment and excrement disposal. The prospective sale is expected to fetch 1.2 trillion won.

The M&A market for South Korea’s waste treatment firms remains robust, showing little impact from the coronavirus outbreak. They generate steady cash flows on growing demand, with the expansion of treatment capacity restricted due to environment regulations.

In particular, medical waste in South Korea had more than doubled to 219,000 tons in 2017 from 91,000 tons in 2008, according to the environment ministry’s research.

The treatment price nearly doubled to more than 1 million won per ton in 2019, versus 513,000 won in 2010.

Meanwhile, Anchor Equity has recently put Daeheung Farm Co. Ltd., the world’s biggest mushroom farm, back up for sale, which is estimated to bring in about 200 billion won.

Last year, it sold the medical goods wholesaler Geo-Young Corp. to Blackstone for 1.1 trillion won, nearly three times its investment and a dietary supplement company to TPG for around $250 million.

Write to Chaeyeon Kim at why@hankyung.com