Korea Dominates in Asia Leveraged Loans on Private Equity

(Bloomberg) -- South Korean lenders have dominated the ranks of firms participating in leveraged loans in Asia excluding Japan this year, as they provide funds for private equity firms that are on a buying binge of the country’s assets.

Eleven financial institutions from the peninsula, led by government-backed Korea Development Bank, took up all the top spots as the most active participants in the region’s leveraged facilities this year through July 2, according to data compiled by Bloomberg. Last year the firms were a mix of European, Korean and Taiwanese lenders.

Korea Dominates in Asia Leveraged Loans on Private Equity

“Private equity firms especially from abroad seem to be actively looking at Korean companies, especially in the biopharmaceutical and cosmetics industries, and they are seeking loans for those acquisitions,” said Bae Suk-hee, Seoul-based team head in the M&A department of Korea Development Bank.

Korean suppliers of finished products such as ships and smartphones along with vital components like displays and semiconductors are key targets for private equity funds. Steady economic growth and receding tensions with North Korea strengthen the case for investing in the country.

In Asia excluding Japan as a whole, leveraged loans came to $14 billion via 35 deals this year through July 2, nearly tripling from $5.5 billion via 18 transactions from the same period last year, according to data compiled by Bloomberg.

Korea Dominates in Asia Leveraged Loans on Private Equity

Cash committed to private equity funds in Korea has been increasing, coming to about 62.6 trillion won ($55 billion) at the end of 2017, from 20 trillion won at the end of 2009, according to the Financial Supervisory Service. Funds will also have plenty of cash in search of investment targets to take care of the nation’s growing senior population -- the National Pension Service, the country’s biggest retirement fund, manages more than 600 trillion won.

Bae said there’s a lot of so-called dry powder, or money raised but not yet invested at private equity funds, “so I think such private equity-driven M&As will continue for a while.”

The private equity industry has thrived over the last 13 years in South Korea and now accounts for roughly a quarter of all of the country’s M&A activity, Richard Lee, a senior partner at McKinsey & Co., wrote in a report.

Private equity funds have invested almost $100 billion of capital into more than 870 companies in South Korea since 2005, the year the market opened up following regulatory changes that enabled the creation of local buyout funds, according to McKinsey.

The data compiled by Bloomberg focus on deals where lenders invested money in leveraged facilities. The primary use of the proceeds in those deals was leveraged buyouts, management buyouts, recapitalization and secondary buyouts. The figures exclude work as mandated lead arrangers and bookrunners.

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