SEOUL, 8 September 2003 — Foreign private equity fund investment in South Korea looks set to more than double to about $2 billion in the second half of 2003 as funds step up bargain hunting in a bid to repeat their success after the 1998 crisis.
Eyeing the emergence of Asia’s fourth-largest economy from a first half recession, equity fund managers like Lone Star, Goldman Sachs, AIG, Newbridge Capital and Carlyle are busy building up their teams and scouring the market for investment opportunities.
These US funds are eager to repeat the impressive returns some funds made buying distressed assets in the wake of the 1998 Asian financial crisis.
Goldman Sachs invested $500 million in Kookmin Bank in 1998 and the subsequent near tripling of its value to $1.36 billion since then is seen as a model of how to profit from buying distressed assets in South Korea. Goldman took more profit from its investment last week, selling a 3.96 percent stake in Kookmin for $465 million. Goldman and others have announced a rash of deals in recent weeks. Lone Star agreed a $1.2 billion deal in late August to take control of Korea Exchange Bank in the biggest foreign investment in the country’s financial sector.
Goldman’s fund plans to buy a 24 percent stake in South Korea’s second-largest life insurer, Kyobo Life Insurance Co, for $170 million, sources close to the deal said.
Goldman hopes it can reap substantial cash proceeds from selling its stake in a possible initial public offering once South Korean regulators allow insurers to list.
Private equity investors led by American International Group and Newbridge Capital agreed in late August to take control of South Korea’s second-largest broadband provider Hanaro Telecom for $500 million.
Private equity funds have already invested around $1.87 billion in South Korea so far in the second half of the year. This is more than double the $755 million seen in the first half of the year, which was itself about half that seen in the first half of 2002, the Asian Venture Capital Journal said.
“In Asia, South Korea and Japan are reviving,” said a source close to US-based Warburg Pincus, referring to the M&A market.
Private buy-out funds invested $2.2 billion in Japan in the first half of the year.
Equity fund investors in South Korea have set their sights on financial services, telecommunications and manufacturing, including food makers, which have more stable earnings and higher barriers to entry than technology companies, say officials familiar with them.
Those funds manage a combined $7 billion in South Korea, a third of what they have in Japan, the Asian Venture Capital Journal said.
It is bigger than the $5.62 billion of net foreign portfolio investment in South Korean shares made so far this year, which has helped boost the key stock index by 50 percent since mid-March.
The funds say they are set to raise their investments in South Korea in the near future.
“Korea is one of the best countries we are looking for,” Park Byung-moo, the head of US investment fund Newbridge Capital Korea, told reporters. “There are a lot of good assets and also we have a strong belief that the Korean economy will recover soon.”
Lone Star has said it is set to invest $5.7 billion in South Korea over the next few years. It has $18 billion under management worldwide, mostly in financial companies.
Carlyle, running $17 billion worldwide, plans to increase its Korean commitment to around $375 million from less than $250 million at present, a source close to the fund told reporters.
Other US investment funds have substantial stakes in South Korean banks, with Newbridge Capital acquiring a majority stake of nationalized Korea First Bank in 1999. Carlyle is the biggest shareholder in KorAm Bank.
Hana Bank, the fourth-biggest bank in South Korea, is in talks to sell a 19 percent stake in the bank to Japan’s Shinsei Bank, controlled by the private equity fund Ripplewood, which itself sealed Japan’s biggest leveraged buyout last month when it bought Vodafone Plc’s Japanese fixed line telecom operations for $2.2 billion.
