Affinity Equity to refinance Serveone to recoup investment

Affinity Equity Partners is in the process of raising 700 billion won ($565 million) to recapitalize South Korea's Serveone Co. in an attempt to recoup its investment in the procurement service provider in three years, according to people with knowledge of the matter on Thursday.

In February 2019, Affinity acquired a 60.1% stake in Serveone, a spin-off from LG Group, for 604.2 billion won. For speedy execution, it had closed the deal only with the money from its fund investors. 

Later that year, the private equity firm borrowed 285 billion won from the state-run Korea Development Bank at mid-3% to replace part of its equity funding with debt.

The 700 billion won to be raised will be lent at the higher end of the 4% range.

Of the total, Affinity will use 440 billion won to repay the debt borrowed in 2019 for its first refinancing of the Korean company. At the time, the refinancing was arranged by KB Securities at mid-3%.

The remainder will be spent on dividend payouts to shareholders and compensate them for capital reduction. 

KB Securities Co. will take the biggest portion of the new debt financing. Korea Investment & Securities Co. and NH Investment & Securities Co. will join the pool of lenders.

KB had financed Affinity's previous acquisitions in Korea, including the Lock & Lock food container maker and the country's top recruitment portal JobKorea.

Since last year, Affinity has started recovering its investment in the Korean purchasing services company. 

In October 2021, Affinity retired part of its shares in the outsourcing service provider and secured 120 billion won in cash. S&I Corp., Serveone's No. 2 shareholder, joined Affinity in canceling a portion of its shares in Serveone in return for 80 billion won.

Affinity is considering further reducing Serveone's capital, according to the sources.

Serveone was established in 2018, taking over the purchasing services for maintenance, repair and operation from LG Group in 2018. The split-off was aimed to meet the government regulations that prohibit conglomerates from funneling businesses into their subsidiaries.

Last year, its operating profit came in at 140 billion won on sales of 5 trillion won. Its sales have been steady between 4 trillion and 5 trillion won a year thanks to procurement orders from its former affiliates, or LG Group units. 

To improve Serveone's value, Affinity purchased the South Korean operations of Office Depot, the country's largest office supplies distributor, last month. It took over the entire stake in Office Depot Korea from Hong Kong-based Excelsior Capital Asia for 61.6 billion won.

Write to Si-Eun Park at seeker@hankyung.com
Yeonhee Kim edited this article.