Domestic PEFs Helpless
Singapore-based Keppel Infrastructure Trust entered the Korean M&A market by acquiring waste disposal company Eco Management Korea on Oct. 21. The asset management firm with an AUM of US$5 billion spent approximately 770 billion won in this deal, about 20 times the company’s EBITDA.
According to experts, this deal of Keppel was possible because of the current strong dollar, which has made South Korean enterprises relatively cheap. “The firm is estimated to have paid US$539.4 million at a KRW-USD exchange rate of 1,400 won,” one of them said, adding, “This deal started early this year, when the exchange rate was 1,100 won, and the payment is US$686.5 million at that exchange rate.”
Global PEFs are increasingly leading M&A bids in South Korea by benefiting from the strong dollar. Last month, Brookfield Asset Management took over industrial gas production facilities from SK Materials Air Plus for about one trillion won. It is estimated that the Canadian asset management firm’s payment fell from US$988.9 million from US$777 million as a result of the exchange rate movement.
Domestic PEFs are feeling helpless. This is because their main fund source is domestic institutional investors, which provides won instead of dollar. Besides, the interest on acquisition financing is now over 8 percent, making their financing even more difficult.