Acquisition Financing Expected to Surpass 7 Tril. Won.
Global investment banking (IB) companies headquartered in Hong Kong, including J.P. Morgan, are visiting South Korea for talks with South Korean financial companies before the official auction for NXC Corp. starts. They are discussing a financing structure with local financial companies as the sale price for the nation's largest game developer is estimated at 15 trillion won (US$13.20 billion) and acquisition financing alone is expected to surpass 7 trillion won (US$6.16 billion).
The working groups of five to six global IB companies which have their Asia-Pacific investment headquarters in Hong Kong, such as J.P. Morgan, Credit Suisse and BNP Paribas, have visited South Korea and contacted South Korea’s commercial banks and securities firms, according to merger and acquisition (M&A) industry sources on March 17. They have discussed ways to join hands and arrange acquisition financing with domestic financial companies before the official auction opens for the sale of NXC Corp. next month.
Nexon Group has put its 98.64 percent stake in its holding company, NXC Corp., up for sale and bidders are conducting a due diligence on it. After the due diligence, Deutsche Bank, the manager of the deal, is planning to begin the official auction, possibly next month, and strategic investors, including Kakao and Tencent, and large private equity fund (PEF) management companies, such as MBK Partners, KKR and Bain Capital, are forecast to participate in it.
The problem is the huge price of the deal estimated at up to 15 trillion won (US$13.20 billion). The amount can vary depending on the structure of financing and the method of the sale but the IB industry estimates the size of acceptance financing at 7 trillion won to 8 trillion won (US$6.16 billion to US$7.04 billion). An official from the IB industry said, “This is an attractive deal because we can earn more than 200 billion won (US$175.98 million) a year in interest income even when the lending interest rate is set at as low as 3 percent. However, it is impossible to invest trillions of won in a gaming firm which does not have tangible assets that can be offered as collaterals. Domestic financial firms cannot even objectively predict the future of Nexon Group 10 years later.”
The book value of NXC’s intangible assets stood at 1.11 trillion won (US$977.30 million) at the end of 2017, while that of its land holdings and buildings among its tangible assets was only 269.80 billion won (US$237.40 million). It is a difficult situation for South Korean financial firms, which give out mostly security loans, to hastily make a large investment.
Global IB firms are seeking to take advantage of such a weakness. They are proposing that acquisition financing be divided into two trenches – Korean won and foreign currency – and domestic financial companies take responsibility for financing in Korean won and foreign IB companies for foreign currency financing as nearly 70 percent of Nexon’s sales are from the global markets.
Another variable is whether China’s largest gaming firm, Tecent, will join the bid or not. If Tencent participates in the bidding, it can reignite interest in the deal which has slightly vanished. There is also a possibility that Tencent, which has deep pockets, will reshape the financing structure by attracting Chinese IB companies.