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PEF divestments

PEFs knocking on door of Korean IPO market for profitable divestment

By May 10, 2021 (Gmt+09:00)

PEFs knocking on door of Korean IPO market for profitable divestment

South Korean and overseas private equity firms are knocking on the door of the initial public offering market for profitable divestments, riding the IPO boom and improving earnings at companies in which they have invested.

According to the investment banking industry on May 10, several PEFs are considering or in the process of public share sales to exit their investments – a method rarely employed by fund operators previously.

Hahn & Co., which owns H-Line Shipping Co., recently resumed its plan to list the Korean bulk carrier on the Korea Exchange after a three-year hiatus. The PEF is working with IPO managers Mirae Asset Securities Co. and NH Investment & Securities Co. for the share sale.

Earlier this month, Anchor Equity Partners, which owns 100% of coffeehouse chain A Twosome Place, sent out requests for proposals to brokerages to select managers. The Hong Kong-based private equity firm wants to recover its investment in A Twosome Place by debuting the company on the local bourse in the first half of 2022.

KKR & Co. and Baring Private Equity Asia are seeking to exit online shopping platform TMON Inc. and delivery service firm Rogen Co., respectively, through IPOs.

Other companies, where PEFs are holding the majority stakes, are also planning to go public.

Game developer Krafton Inc., majority-owned by IMM Investment Corp., and HK inno.N Corp., in which Seoul-based STIC Investment Inc. invested, are under preliminary review by the Korea Exchange for their planned IPOs.

The list of companies in the middle of an IPO process include luxury handbag maker Simone Acc. Collection Ltd. (invested in by Blackstone Group); car-sharing platform Socar Inc. (SG Private Equity); Korea’s largest travel platform Yanolja (SkyLake Investment); and ADT Caps Co. (Macquarie).

TIME RIPE TO REVISIT LONG-SHELVED IPO DREAMS

PEFs usually prefer stake sales to interested investors over IPOs to recover their investments as stock market divestment runs the risk of holding onto the investment longer than expected if the equities market is in bad shape.

There have been few notable cases of divestments via IPOs.

PEFs knocking on door of Korean IPO market for profitable divestment

In 2017, MBK Partners and VIG Partners made a successful exit by selling their equities investments in ING Life and Samyang Optics, respectively, through initial share sales.

Some unsuccessful cases include MBK’s aborted IPO of Doosan Machine Tools. VIG, which has pushed for an IPO of wellness company Bodyfriend Co. since 2018, has still made little progress on the listing.

However, the tide has turned thanks to the unprecedented IPO boom in Korea and improving corporate earnings amid the global economic recovery, prompting PEFs to revisit the IPO market for profitable divestments.

Late last month, SK IE Technology Co. (SKIET), the battery materials subsidiary of SK Innovation Co., set a new record for initial public offering demand, attracting as much as 80.9 trillion won ($73 billion) in deposits from retail investors during its two-day public subscription.

SIGNS OF RISING BORROWING COSTS

Analysts expect more private equity firms to resort to the IPO market to recover their money before global interest rates start to rise again, which may trigger fund outflows from the stock market.

A rise in borrowing costs would also discourage potential investors from buying stakes in companies up for sale by PEFs, they said.

Industry watchers said if the PEFs’ planned IPOs this year are successful, it could provide them with a diversified way of exiting their investments.

“In the past, the Korea Exchange and institutional investors didn’t like an IPO of a company owned by a private equity fund because they thought PEFs were only interested in higher returns by inflating their invested firms’ valuations. But apparently, their views toward PEFs have changed,” said a chief executive of a local private equity company.

Write to Jin-Seong Kim and Jun-Ho Cha at Jskim1028@hankyung.com

In-Soo Nam edited this article.

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