Private equity firms flex muscle in South Korea

By Kim Yeon-hee

SEOUL (Reuters) - Foreign private equity funds, which had kept a low profile in South Korea in recent years amid fears of a backlash, are stepping up their hunt for bargains again as cash-strapped conglomerates look set to sell juicy assets.

Foreign private equity firms have been cautious on South Korea since U.S. investment firm Lone Star's purchase of a stake in Korea Exchange Bank in 2003 fueled heated criticism about the huge profits foreigners could reap from distressed Korean assets.

The Lone Star deal quickly became a political football, and is still being dragged through the courts.

Now, however, foreign private equity funds like CVC and Affinity Equity look set to test the waters again, banking on the new government's friendlier disposition to foreign capital.

The slumping won is also making South Korea more attractive to outside buyers, while local business groups, once strong competitors, have been hobbled by the country's financial woes.

"The first and second quarters of next year will start to see more volumes of M&A activities," said Gunny Cho, an executive director of KTB Securities' M&A team.

"Conglomerates are selling because they need cash. They are not distressed assets but distressed sellers."

M&A transactions involving private equity firms in South Korea have more than doubled to $3.6 billion in value so far this year from a year earlier, according to Thomson Reuters.

Mid-sized conglomerates, including the Kumho and Hanwha groups which had respectively clinched high-profile deals such as Daewoo Engineering (047040.KS) and Daewoo Shipbuilding (042660.KS), are planning to sell assets to finance those deals.

Two weeks ago, private equity fund MBK Partners signed a 400 billion won ($271 million) agreement to buy a packing unit of South Korea's Doosan Corp (000150.KS).

Doosan's parent group bought Bobcat, the world's top compact construction equipment firm and other assets from Ingersoll-Rand (IR.N) for $4.9 billion in 2007.

Analysts say some debt-laden chaebol, or family-run business groups, may have to abandon core assets to survive.

Eugene Group, which had been in aggressive acquisition mode until January, is putting Eugene Investment (001200.KS) up for sale after it bought the securities company in 2006.

STX Group, which acquired total control over Europe's biggest shipbuilder Aker Yards AKY.OL this year, may consider selling small stakes in the European firm, an STX spokesman said.

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