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| Vice Finance Minister Kim Yong-beom, third from left, talks with Geo-Young Chairwoman Cho Sun-hae, fifth from left, at the company's warehouse in Incheon in this March 3 file photo. / Courtesy of Ministry of Economy and Finance |
By Park Jae-hyuk
Blackstone has apparently hit the jackpot with its investment in a local mask distributor.
Amid soaring demand for face masks among Koreans after the COVID-19 outbreak, the world's largest private equity firm (PEF) has become an unexpected beneficiary of the crisis, since it owns the company Geo-Young which was selected as one of two distributors of what the government is calling "public masks."
In February, the government licensed Geo-Young and Baekje Pharmaceutical to supply the masks as part of measures to tackle the worsening mask shortage, control pricing and prevent hoarding.
According to the Ministry of Economy and Finance, the two companies have bought masks from manufacturers for 900 to 1,000 won ($0.8) per unit and sold them to pharmacies nationwide at 1,100 won per unit.
The prices were fixed by the Public Procurement Service under the supervision of the finance ministry.
Given that an average of 5.6 million masks are being distributed per day, the distributors' daily profits are collectively estimated at 560 million won to 1.12 billion won.
The amount distributed by Geo-Young accounts for 75 percent of the total, so the company can collect up to 800 million won every day.
The average daily profit can be seen as quite large for Geo-Young, considering its annual operating profit in 2018 stood at 35.4 billion won.
Furthermore, Geo-Young has been able to expand its distribution network without costs, due to its partnership with the government in the midst of the epidemic.
The finance ministry said the number of drugstores dealing with Geo-Young rose to 17,000 from 14,000 after it was selected as a public mask distributor.
The favorable factors are expected to allow Blackstone to benefit when it exits its investment in Geo-Young in the future.
Blackstone announced in April 2019 that it joined hands with Geo-Young founder Cho Sun-hae to acquire the wholesale distributor of pharmaceutical drug products in Korea.
"We are pleased to announce our new partnership with Chairwoman Cho and the high-quality management team of Geo-Young," Blackstone senior managing director Ed Huang said at that time.
"We are excited to collaborate closely with Chairwoman Cho and her team, and look forward to leveraging our global resources and expertise in health care and distribution businesses around the world to support Geo-Young's continued growth and market leadership."
Back then, Blackstone said Cho would continue to be a significant shareholder of Geo-Young and would retain her leadership position at the company.
But the firm did not disclose the value of its investment.
As Geo-Young has yet to publish its regulatory filing for 2019, its specific shareholder structure remains unknown.
Market insiders assume that Blackstone and Cho bought a 46 percent stake in Geo-Young from Anchor Equity Partners, a Hong Kong-headquartered PEF, for 1.1 trillion won last year.
If their assumption is correct, this was the largest investment Blackstone has ever made in Korea.
"Blackstone declined to comment on Geo-Young's shareholder structure," said Carol Park at Access Communications and Consulting, the PEF's local PR agency. "But it said its relationship with Geo-Young remains unchanged."
According to Blackstone, corporate private equity assets under its management amount to $90 billion.
