Private equity firm MBK Partners is working on a 1.4 trillion-won ($1.16 billion) recapitalization of Doosan Machine Tools, sources said on June 11.

The South Korean machine tool manufacturer and its holding company DMT Holdings will borrow 700 billion won each, including revolving credit facilities, according to sources.

Doosan Machine Tools plans to use 450 billion won of the recapitalization to repay existing debts, while 200 billion won will be distributed back to the holding company. Of the proceeds received by DMT Holdings through recapitalization, 310 billion won will be used to pay existing debt.

MBK Partners was also paid a dividend of 70 billion won from DMT Holdings in March. The recapitalization, combined with the latest dividend, will earn the firm roughly 540 billion won from DMT Holdings.

MBK Partners established DMT Holdings in 2016 to acquire Doosan Infracore’s machine tool operation – now known as Doosan Machine Tools – for about 1.2 trillion won. The firm made a 440 billion-won equity investment in DMT Holdings through its third buyout fund while raising about 660 billion won in loans.

In 2018 MBK Partners recapitalized Doosan Machine Tools to increase its debt from 660 billion won to 1.15 trillion won. After the transaction MBK Partners took about 470 billion won from DMT Holdings, making a profitable partial exit.

As MBK Partners already earned more than its equity investment, the 540 billion won net proceeds from the second recapitalization – less repayment of existing debt – will likely be recognized as excess earnings. Dividends paid annually from Doosan Machine Tools also appear to have contributed to raising investment returns.

North-Asia focused MBK Partners is known for employing various partial exit strategies prior to a full exit.

The firm made partial exits from Coway, a water purifier rental company, through three rounds of recapitalization and two block sales during five years of its investment before making a full exit by selling the remaining stake to Woongjin Group last year. MBK Partners’ investment in Coway recorded an internal rate of return of 26% and a multiple equity of 3.3 times, according to the firm.

MBK Partners’ full exit from Doosan Machine Tools is expected to be delayed as the firm halted a sale process earlier this year due to obstacles including the financial fallout of Covid-19. (Reporting by Hee-yeon Han)