KKR to expand Korea waste management portfolio to sewage treatment

KKR & Co. is set to acquire a non-controlling stake in a South Korean sewage management company in a deal worth up to 200 billion won ($170 million), on the heels of its 875 billion won purchase of two Korean waste treatment companies last week.

The US private equity firm will soon sign a share purchase agreement with SK Engineering & Construction Co. Ltd. to buy a 16.7% stake in TSK Corporation, according to investment banking sources on August 27.

The stake up for sale is worth between 160 billion won and 200 billion won ($135 million and $170 million), they said.

SK Engineering is the second-largest shareholder in the sewage and wastewater treatment company, after Taeyoung Engineering & Construction Co. Ltd. with 62.61%.



 

SK Engineering, jointly with SK Chemicals Co. Ltd, reportedly poured a combined 70 billion won into TSK Corporation since 2010 to acquire the stake. Through the share ownership, SK has been in business partnership with the waste management company.

KKR is now tapping Taeyoung Engineering in pursuit of the majority stake in TSK, according to the sources.

Last week, KKR wrapped up the 875 billion won purchase of ESG Co. Ltd., a medical waste treatment firm, and ESG Cheongwon Co. Ltd., an industrial waste management company, from Hong Kong-based private equity firm Anchor Equity Partners.

KKR is expecting its shareholding in TSK will create synergy with its two Korean waste treatment companies in the expanding waste management market.

SK Engineering may use the proceeds from the stake sale to fund the prospective purchase of EMC Holdings, valued at slightly over 1 trillion won. SK Engineering’s cash holding was 602.4 billion won as of the end of June.

Last week, SK was named as the preferred buyer of EMC Holdings, the country’s largest waste treatment company. In the competition, it beat out foreign bidders such as Goldman Sachs Merchant Banking, KKR and Singapore’s Keppel Infrastructure Holdings. It is now working on the terms and conditions of the acquisition.

To smooth the way for the deal, KKR removed the non-compete clause from the agreement, considering SK Engineering’s purchase of EMC Holdings.

South Korea’s fragmented waste management market has undergone a series of consolidations, led by three foreign owners: Affirma Capital, Anchor Equity Partners and Macquarie. The three foreign investment firms had made bolt-on acquisitions of Korean waste treatment firms before selling them to SK Engineering, KKR and a Korean consortium, respectively.

Under the new ownership, those companies are expected to lead another round of consolidation in the sector.

Write to Ri-ahn Kim and Jun Ho Cha at knra@hankyung.com