Sell-side due diligence on Hyosung Capital is in its final stage. The seller aims to sell the company at a price-to-book (P/B) ratio of one or more.
Hyosung Capital’s financial advisor Samil PwC has reportedly finished the seller’s due diligence and the preparation of the report. The due diligence report is expected to be transferred to the seller Hyosung Group and the sale manager soon. Based on the report, an information memorandum will be prepared in the near term.
The seller sees factors dragging down the transaction value have been reduced. The seller’s non-performing loans (NPLs) were initially considered obstacles of the sale process but the seller has been making efforts to improve its asset quality by unloading NPLs. As of the end of 2019, Hyosung Capital’s special mention loan ratio stood at 7.7 percent, down from 2018’s 8.1 percent.
The seller is expected to tout Hyosung Capital’s strengths in terms of the large number of liquid assets and industrial machines the company owns.
Market insiders expect the seller will aim to sell the company for about 416.8 billion won ($347.6 million), which represents a price-to-book ratio of one or more. Hyosung Corporation, which owns 97 percent of Hyosung Capital, has set the company’s book value at 461.3 billion won.
“Hyosung Group has to sell (Hyosung Capital) at a price higher than or similar to its book value in order not to sell at a loss,” an industry source said. “The seller is likely to emphasize to potential buyers that the firm has few factors which will reduce its price tag and put utmost efforts to sell at its desired price.”
But the seller’s desired price of a price-to-book ratio of one is higher than the price proposed by some potential buyers. Baring Private Equity Asia (BPEA) approached Hyosung Group last year to take over Hyosung Capital for approximately 320 billion won. The conglomerate, which aimed to sell Hyosung Capital as high as 500 billion won, and the private equity firm reportedly couldn’t agree on the company’s valuation.
Multiple foreign investors, including Ping An Insurance Group, are expressing interest in Hyosung Capital. Market insiders are paying attention to what their bidding price will be.
Hyosung Group should complete the sale of Hyosung Capital by the end of December to comply with the local regulation that forbids a non-financial holding company from owning a stake in a financial services company. Sale manager BDA Partners is reportedly expected to hold the first round of bidding for the company at the end of June. (Reporting by Ik-hwan Choi)