Global private equity (PE) firm KKR plans to use its worldwide networks to improve the competitiveness of South Korean marine engineering firm Hyundai Global Service after its investment via a pre-initial public offering (pre-IPO).
The PE firm will fund the investment through its fourth KKR Asia Fund worth $12.5 billion while financing half the acquisition price through loans from domestic financial institutions. Mirae Asset Daewoo and Hana Bank are acting as arrangers.
Hyundai Heavy Industries Holdings (HHI Holdings) entered into private negotiations with KKR in the second half of 2020 after contacting global PE firms to raise funds for the pre-IPO. Hyundai Global Service is a wholly-owned subsidiary of HHI Holdings.
KKR pursues two investment strategies in Asian markets, including South Korea. It either becomes a partner of a major company and invests in a non-core business to boost its value or supports a company’s globalization by investing in its core business. KKR has chosen the latter for its investment in Hyundai Global Service.
Hyundai Global Service provides maintenance and repair services for ships, with most demand coming from shipbuilding affiliates of the holding company. Hyundai Global Service posted a little over one trillion won ($900 million) in revenue in 2020, with an operating income of 157 billion won.
KKR has focused on the booming environmentally-friendly vessel market, partly due to stricter environmental regulations. The company also gets steady orders from shipbuilding affiliates of the holding company, and these are expected to increase when Korea Shipbuilding & Offshore Engineering, a holding company of Hyundai Heavy Industries, is combined with Daewoo Shipbuilding & Marine Engineering.
As a major global PE firm, KKR plans to utilize its strong networks to improve Hyundai Global Service’s competitiveness in overseas markets. HHI has already established networks as a flagship shipbuilder, but KKR is expected to assist by boosting the sales organization and manpower and systematizing its existing networks.
KKR has also focused on Hyundai Global Services’ services for optimizing the operating efficiency of a ship by collecting and analyzing data on navigation and equipment operations during its life cycle through smart solutions and a digital control center. The PE firm is studying the possible bolt-on acquisition of an IT company which specializes in such technology.
KKR will own 38% of Hyundai Global Service after the deal, which valued the company at around two trillion won. HHI Holdings will secure 800 billion won, including 150 billion won from Hyundai Global Service, through the deal. (Reporting by Si-eun Park)