Debt financing for the recapitalization of Doosan Machine Tools – owned by MBK Partners – has been met with weak demand from investors.
Korea Investment & Securities and Woori Bank jointly arranged a 1.4 trillion won ($1.2 billion) recapitalization of Doosan Machine Tools in June. They underwrote 700 billion won each, but only about 50% of the amount has been sold to investors so far, industry sources said.
Investor reluctance is not a surprise given concerns about Doosan Machine Tools involvement in large debt financing despite its weakening financial profile.
The South Korean equipment company’s earnings before interest, tax, depreciation and amortization declined to 218 billion won on a consolidated basis in 2019, from 280 billion won a year earlier. Also, the prospects for earning growth are not strong due to increased uncertainty and the economic slowdown.
Some industry watchers are concerned over slow progress with syndication. However, Korea Investment & Securities and Woori Bank are confident they will be able to complete the process by the end of this year.
“The Covid-19 pandemic and summer holiday season have caused delays in investors’ decision-making,” said an official at Korea Investment & Securities. “We are aiming to complete the sale of the remainder during the next couple of months.”
Korea Investment & Securities has also been appointed to co-arrange loans with NH Investment & Securities to fund Baring Private Equity Asia (BPEA)’s 553 billion won equity investment in Shinhan Financial Group, which was announced earlier this month.
Debt financing backing the Shinhan deal is expected to attract sufficient investors because of Shinhan’s dominant market position and BPEA’s strong credit profile. Several investors, such as insurance companies and credit unions, have already expressed interest in placing an order, industry watchers said. (Reporting by Hye-ran Kim)