Private equity looks to South Korea as next Asian frontier

{"text":[[{"start":6.96,"text":"Global private equity groups now make up a majority of large buyout deals in South Korea, in a sharp jump from the past few years as the sector looks for the next frontier after Japan."}],[{"start":17.56,"text":"Foreign firms, either independently or in consortium with domestic investors, accounted for more than 80 per cent of private equity takeovers above Won500bn ($370mn) in value so far this year, according to data from Dealogic."}],[{"start":33,"text":"That marks a step up from the previous year, when they accounted for about 60 per cent, and a sharp jump from four years ago, when they held just over 10 per cent."}],[{"start":42.44,"text":"Advisers said Asia’s fourth-largest economy shared many of the market conditions that made neighbouring Japan a hotspot for private equity, including corporate carve-outs, governance reforms and ageing founders."}],[{"start":53.68,"text":"“There are not many countries in Asia except Japan and Korea that offer large-size deals . . . for global buyout funds,” said David Sim, a partner at PwC. “Foreign PE groups see a lot of room in creating value by taking target companies’ products and services abroad.”"}],[{"start":null,"text":"

"}],[{"start":70.44,"text":"Japan still dominates regional deployment, comprising more than a quarter of private equity investment in Asia last year, while South Korea accounted for 11 per cent, according to Deloitte."}],[{"start":80.68,"text":"But investors are increasingly looking beyond a crowded Japanese market as geopolitical tensions also prompt them to reduce their exposure to China."}],[{"start":89,"text":"Icksoo Jung, head of Korea for Carlyle’s Asia buyout platform, said the country was a “core market” for its Asia operations and “an important market for us globally”."}],[{"start":99.04,"text":"“There are bigger deals coming out of Korea as the economy matures,” he said. “From an opportunity standpoint, I think it is getting larger.”"}],[{"start":107.92,"text":"Total buyout deal volume in South Korea rose about 3 per cent to $7.8bn this year to the end of September compared with the same period last year, according to Dealogic. Deals above Won500bn in value accounted for about half."}],[{"start":123.04,"text":"Succession issues have emerged as one of the biggest catalysts. Like Japan, South Korea has an ageing population, with baby-boomer founders of midsized businesses approaching retirement age."}],[{"start":132.88,"text":"“They need to think about how they want to retire, how they want to pass on their company to their children,” said Jung, citing Carlyle’s recent acquisition of water purifier maker Chungho Nais as an example."}],[{"start":145.8,"text":"With inheritance tax reaching up to 60 per cent for controlling shareholders, founders are realising “it is really difficult . . . to pass on ownership to the second and third generation”, he said."}],[{"start":156.86,"text":"Younggun Kim, a partner at EY Parthenon, said the higher tax rate for passing on company ownership often forced founders to “sell their family silver”."}],[{"start":166.96,"text":"The market has also become more active as companies shed non-core businesses. Investors emboldened by new laws aimed at strengthening the rights of minority shareholders are pressing chaebol, South Korea’s family-owned conglomerates, to downsize their sprawling portfolios."}],[{"start":182.44,"text":"Lotte Group, one of the country’s biggest chaebol, sold its car rental business to TPG this year as part of a broad restructuring. SK Group, the owner of chipmaker SK Hynix, sold stakes in its renewable energy businesses to KKR last year to redirect capital towards AI and semiconductors."}],[{"start":201.88,"text":"Jaehoon Ahn, head of Korea investment banking at Goldman Sachs, said investor enthusiasm for South Korean chipmakers such as SK Hynix and Samsung Electronics had extended into other parts of the AI supply chain."}],[{"start":214.88,"text":"“We are seeing growing interest across the AI and semiconductor ecosystem, extending beyond chipmakers to equipment manufacturers, power generation and transformer suppliers,” he said."}],[{"start":227.32,"text":"Foreign private equity is also filling a void left by South Korean firms. The government has increased scrutiny of the local sector after the near collapse of Homeplus, a supermarket chain undergoing debt restructuring."}],[{"start":239.44,"text":"South Korean prosecutors are investigating MBK Partners, which bought the chain with co-investors in 2015, over potential fraud. They have accused the firm of issuing Homeplus bonds despite knowing it faced an impending credit rating downgrade."}],[{"start":254.64,"text":"Lawmakers have introduced more than a dozen bills aimed at tightening oversight of South Korean private equity groups, while the National Pension Service has paused commitments to domestic firms."}],[{"start":265.32,"text":"As a result, fundraising by the local sector has fallen to $2.6bn so far this year from $14.4bn last year, according to Dealogic."}],[{"start":280.56,"text":""}]],"url":"https://audio.ftcn.net.cn/album/a_1792388825_3481.mp3"}