How does Standard Chartered’s private equity unit work?
We are its in-house so-called “principal investment arm”, so we use the bank’s balance sheet to invest in corporations providing growth capital, funding change of ownership, M&A etc.
Since the end of 2004, I’ve been investing in Korea. Predominantly, private equity investing in Korea is large buyouts or growth capital investments. But what we have done is unique in the sense that we play right in between. We’ve been investing almost like a joint venture structure where a Korean promoter takes 51 percent-plus and we take anywhere from around a 20 to 49 percent stake in the company.
Because most of the global private equity firms focus on doing large, billion dollar auctions in Korea, and most local firms provide growth capital below $50 million, what we have been doing has been less competitive. But it is not as if there are a lot of deals [of the size we focus on] in the market, these are deals we originate from scratch, and then we spend a lot of time with promoters, anywhere from between 6 to 18 months, to execute these investments.
Is deal flow in Korea picking up?
Oh yes. MBK [Partners], which is led by former Carlyle partner Michael Kim, announced its acquisition of Woongjin Coway, a majority stake worth $1.2 billion. Last week, Affinity and a consortium including Baring Private Equity and others took a 24 percent stake in Kyobo Life Insurance, which was around $1 billion.
There are a lot of auctions available in the market so by the end of the year there will definitely be more closings, and there is a reason why. This year in Korea the capital markets have been very slow and there aren’t many capital raisings that have been done. Many corporations in need of de-leveraging need to sell these assets, therefore they are conducting public auctions. In Korea typically these public auctions get done either by a strategic buyer willing to pay a huge premium or a financial investor coming in with creative structures. So in terms of activity and the social awareness and acceptance, M&A has been much better in 2012.
Is debt financing available for private equity deals?
Financing is readily available, because right now Korean financial institutions are flooded with liquidity. So for any of these large deals, be it majority or minority, it is feasible to get financing locally for very, very attractive terms.
For example, if [you do] a large buyout of 100 percent of a $1 billion company, it is definitely possible to lever it up all the way between three to five times Ebitda easily at an interest rate below 6 to 7 percent. But this is dependent on what kind of asset it is. All these assets that are being auctioned off are well-known, generate stable cash-flow and the quality of asset is well-credited by local institutions.