Tcha Partners Asset Management is making a series of investments in South Korean city bus companies as it looks to develop under-valued targets into infrastructure assets.

The newly-formed private equity (PE) firm has acquired a 100% stake in Dong-A Transportation in a 62 billion won ($57 million) deal which includes 208 vehicles and garages, industry sources said on Friday (December 11).

Tcha Partners views bus companies as infrastructure assets with guaranteed returns that could be sold to infrastructure funds or listed on the stock market. The company believes it can boost value by consolidating small and mid-sized firms in city bus markets.

Founded in September 2018, Tcha Partners sees the semi-public bus management system as the last sector which could benefit from a minimum revenue guarantee scheme. Under the system, municipal and provincial authorities have to make up for the losses suffered by bus companies, with seven cities in South Korea having now introduced this formula.

Tcha Partners looks for economies of scale by grouping scattered companies together. It has invested in Korea BRT, Myungjin Corporation, Songdo Bus, Samhwan Transportation, Inchen Smart and two bus companies in Daejeon City, in the process becoming the largest bus company in South Korea with about 900 vehicles.

The PE firm plans to acquire another 20–30% of bus companies in all cities that have the semi-public system and will exit its investments after building an economy of scale.

Credit finance companies are among the main limited partners of Tcha Partners, which means the company has to secure a minimum return of 5–6%. If the amount of investment increases, it could sell the bus companies to infrastructure funds funded by domestic and foreign pension schemes.

A minimum return of 3% on the assets could heat up the competition for bus companies among investors. It is common in overseas markets for pension funds and insurance companies to invest in bus companies. (Reporting by Se-hun Jo)