Banks are actively providing financing for new transactions although South Korea’s short-term bond market has been dampened by the Covid-19 pandemic that has suppressed some securities firms’ acquisition activities.
Woori Bank has recently been selected to arrange refinancing of personal care products company Monalisa, a portfolio company of Morgan Stanley Private Equity Asia, sources familiar with the matter said on Thursday. Shinhan Bank is highly likely to arrange IMM Private Equity’s recapitalization of industrial gas company Linde Korea.
Foreign private equity firms are contacting domestic lenders as acquisition financing processes in Hong Kong and Singapore have been delayed due to the Covid-19 pandemic. A Hong Kong-based PE firm, which is in the middle of acquisition process of a Southeast Asian company, has recently visited domestic banks to request acquisition financing.
Banks are active in arranging acquisition financing for new deals in the market. Brokerage firms that have led the domestic acquisition financing market over the past few years have been reluctant to make any aggressive moves since the beginning of 2020 due to concerns over the short-term bond market.
Banks, which are licensed to receive deposits, are much more capable of providing short-term financing for acquisitions compared to brokerage firms. Brokerage firms have reportedly had difficulties in providing acquisition financing in March and April due to the strained short-term money market.
Major brokerage firms are focusing on wrapping up existing deals. They are putting extra effort into refinancing and recapitalization deals where PE firms think the exit market is nearly frozen. Only those with liquidity are proposing new refinancing deals to PE firms.
Some banks are hoping for business expansion. The lenders are likely to beef up their acquisition financing business on the back of their stable sales activities amid the Covid-19 pandemic. They have been largely excluded from arranging acquisition financings as major brokerages such as Mirae Asset Daewoo and Korea Investment & Securities have carried out aggressive sales activities.
A financial institution official said that banks may continue to lead the acquisition financing market throughout the year if the funding market remains subdued. (By reporter Choi Ik-hwan)