Chances are increasing that private equity firms could join the bidding for Hyosung Capital, the financial services arm of South Korea’s Hyosung Group, in a consortium with local financial conglomerates.
Several private equity firms are in talks with major financial conglomerates in the country to form consortia in their attempt to acquire Hyosung Capital, sources close to the matter said on Wednesday. Financial conglomerates that decide to bet for the company are likely to join in as limited partners or by providing acquisition financing to their private equity partners.
It is widely known that some private equity firms, including Baring Private Equity Asia (BPEA), have approached Hyosung Group since last year to take over Hyosung Capital. But the conglomerate and prospective private equity buyers reportedly couldn’t come to agreeing on the company’s valuation.
Private equity firms have shown continued interest in Hyosung Capital because it is currently only a possible candidate for sale among domestic financing companies and they expect a relatively easy exit from the company in the future. Improved financial performance of Aju Capital and Acuon Capital – which are respectively owned by Well to Sea Investment and BPEA – also contributed to private equity firms’ increased attention to Hyosung Capital.
“Aju Capital and Acuon Capital, both of which are under the ownership of private equity firms, continue to grow in asset size and have seen their profitability improve steadily. This has led to increased interest in financing companies,” an industry insider said, adding that the positive prospects for the sector have also made the company more attractive.
Prospective private equity buyers are especially paying attention to a role that Woori Financial Group played in the Aju Capital and Acuon Capital deals. Well to Sea Investment secured a capital commitment worth half the total acquisition cost from Woori Bank in 2017 when it bought a controlling stake in Aju Capital. Woori Bank also provided acquisition financing to BPEA when the Hong Kong-based private equity firm acquired Acuon Capital and its subsidiary Acuon Savings Bank in 2019.
Aju Capital’s credit rating was also upgraded from A to A+ after the acquisition by Well to Sea Investment partly because having Woori Bank as one of the major shareholders was considered positive for the company’s outlook. Woori Bank has the right of first refusal over the remaining half stake in Aju Capital, which means chances are high that the company could belong to Woori Financial Group in the future.
Such precedents have highlighted benefits of teaming up with industry players when private equity firms acquire financing companies, prompting them to tap local financial conglomerates for collaboration in the acquisition of Hyosung Capital, industry watchers said.
Some financial conglomerates could consider buying a stake in Hyosung Capital, which has its strength in equipment leasing, as part of efforts to strengthen their market dominance. Partnering with private equity firms can be a viable investment option for them given the economic uncertainty caused by the COVID-19 pandemic and other regulatory issues.
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. The conglomerate is seeking to sell the company for about 416 billion won, which represents a price-to-book ratio of one, or more. The first round of bidding for the company will take place as early as the end of June. (By reporter Choi Ik-hwan)