(Courtesy of Getty Images)
South Korean private equity investments declined last year for the first time since 2016 due to interest rate hikes, high inflation and the won that once fell to the weakest level against the US dollar, Korea’s financial watchdog found.
Korean PE funds which manage institutional investors’ capital invested 32.5 trillion won ($23.4 billion) in 443 domestic and overseas companies last year, 11.9% less investment in 25.4% fewer firms from a year earlier, according to the Financial Supervisory Service on Tuesday.
Korean PE investments in overseas markets plunged 64.9% to 4 trillion won last year. The investments in domestic private markets rose 11.8% to 28.5 trillion won, including the MBK Partners-Unison Capital Korea consortium’s acquisition of dental implant maker Osstem Implant Co. for 2.5 trillion won, the year’s biggest deal.
It is the first year that Korean PE funds’ capital injection has dropped since 2016 when global financial markets were hit by the UK’s referendum on the European Union membership to determine Brexit.
(Graphics by Dongbeom Yun)
High rates impacted PE managers’ fundraising, and the strong US dollar made cross-border mergers and acquisitions more difficult, private market sources said.
“Elevated interest rates challenged acquisition financing, which resulted in reduction of private market investments,” said Samil PricewaterhouseCoopers deal division head Min Joon-seon. “Increased uncertainties of rate policy also negatively affected PE investments,” he added.
Investors’ tepid interest in some large M&As further slowed new investments.
MBK strives to divest a supermarket chain unit of Korean hypermarket operator Homeplus, which the North Asia-focused fund bought for 7.2 trillion won from the UK retail giant Tesco PLC in 2015.
Market insiders said the sale won’t be easy as Homeplus posted an operating deficit last year for three straight years.
Seoul-based IMM Private Equity has postponed its sale of Able C&C, the parent of Korea’s first-generation low-priced cosmetics brand Missha, since 2022 due to the companies’ sluggish earnings.
The PE acquired the beauty product maker for around 400 billion won in 2017 and has seen the company’s market cap shrink to around 260 billion won.
Market watchers expect Korean PE managers to resume their investments once interest rates fall as the dry powder, or cash reserves held by private market investors, increased 33% on-year to 37.5 trillion won as of the end of 2023.
PE investment in the domestic market could rebound this year as Korea’s No. 2 conglomerate SK Group is accelerating the restructuring of its affiliates, including a planned merger of oil refiner SK Innovation Co.’s merger with energy unit SK E&S Co.
If successful, the merger is expected to create the country’s eighth-largest company with a total assets of 106 trillion won.
By Ik-Hwan Kim
lovepen@hankyung.com
Jihyun Kim edited this article.
Leave a Reply