Anna Jiwon Park has been covering the politics at The Korea Times since the summer of 2024, when she joined the press pool for the Office of the President in Korea. Prior to that, she spent about five years reporting extensively on financial markets, regulatory authorities and the financial industry. She joined The Korea Times in 2019 after spending eight years as a broadcast journalist at Arirang TV, Korea’s leading global broadcaster, covering politics, defense and culture.
PEFs face dilemma as exits become difficult
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By Anna J. Park
By Anna J. Park
Due to the soaring global interest rates and concerns over a recession, private equity firms (PEFs) are finding it hard to make successful exits from some of the projects they previously invested in within their portfolios. That's because unfavorable external factors, including curtailed asset prices, slashed corporate valuations, the bearish moves of stock markets and slowed M&A transactions due to the increased costs of financing, are all wreaking havoc on the PEFs in their search for potential buyers to make successful exits from some of their long-held companies.
According to the investment banking industry, Tuesday, Affinity Equity Partners will soon face the maturity of 323 billion won ($246 million) that it financed in 2017 when it acquired a 63.6 percent stake in LocknLock, Korea's largest food container maker. The PEF injected a total of 629 billion won when taking over the stake, and the 323 billion won was financed through a financial undertaking.
The Hong Kong-based PEF paid 18,000 won per share five years ago, but the stock price has remained below the purchasing price throughout the past three years. While the investment in the food container company has long been considered a burden on the PEF, LocknLock's stock price plunged further this year to about one-third the level of the purchased price, finishing at 6,550 won at closing Monday.
Market insiders explain that these sorts of dilemmas happen due to differences in perspectives between PEFs and institutional investors that paid funding as limited partners. Even when PEFs aim to sell some of the projects in their portfolios for lower prices at a loss, it's another thing to persuade the limited partners that funded the investments.
On a similar note, IMM is also struggling with its earlier investment into Hanssem, as the interior company's stock price dived to around one-quarter of the price the PEF paid to purchase it late last year.
When IMM acquired a 27.7 percent stake in Hanssem as well as its managerial rights for 1.45 trillion won late last year, the PEF financed 855 billion won from financial lenders. With Hanssem's stock price plunge, IMM is currently talking with lenders to find ways to be exempted from the application of the loan-to-value (LTV) ratio ― which is set at 75 percent according to the contract between IMM and the lenders in financing ― to avoid a penalty due to the LTV rule.
Some PEFs had to delay to next year their exits of some of the projects in their portfolios slated for this year, due to the unfavorable market conditions.
Kamur Private Equity said recently that it is delaying the sale of Chunho N Care, a health food company it acquired in 2015, to sometime next year. The PEF had been aiming since June to sell a 76.8 percent stake in the food company within this year, yet it has failed to reach an agreement with any potential buyers so far.
IMM and JKL Partners also decided to delay the sale of GS ITM, a system solution company that both PEF hold jointly, to sometime next year. The PEFs held talks with Kakao Enterprise during the second half of this year over the sale of their 80 percent stake in GS ITM, yet the talks ended up failing in November due to price differences.