Korean boom

Since regulatory changes introduced at the end of 2004 allowed for formation of private equity funds, there have been 20 registered, six from January to October this year.

Six new private equity funds have been formed and registered in Korea from January to October this year, according to Korea’s Financial Supervisory Service. This brings the total number of funds under registration to 20 since regulatory changes in late 2004 recognised private equity as an investment entity, paving the way for fund formation.

As of end October, the twenty funds have received total commitments of KRW 4.66 trillion ($5 billion; €3.8 billion) of which 1.76 trillion were committed up to October this year, according to the recent assessment by Korea’s Financial Supervisory Service.

Out of 20 funds, there are seven funds which have more than KRW 300 billion ($323 million; €245 million) each, six medium-sized (100 billion to 300 billion KRW) funds, and seven funds which have less than KRW 100 billion each.

Since the beginning of 2005, eleven of these funds have made investments totalling KRW 999 billion in 27 companies, the largest of which was concluded by Macquarie Opportunities Fund. The KRW 343.9 billion transaction involved the acquisition of a 49 percent stake in SK E & S, a local gas distribution company, according to a spokesman from the FSS.

Events leading up to Lone Star scrapping the sale of its stake in Korea Exchange Bank in recent weeks may cast the country in bad light in the international private equity arena, but those with operations on the ground say the reality isn’t that bad. A senior representative from Macquarie in Korea said the firm hasn’t experienced any anti-foreign sentiment felt by some of their peers in private equity.

And the numbers suggest the Macquarie executive might be right.

A total 18 deals have been concluded in ten months this year, compared to nine investments worth a combined KRW 267.7 billion for all of 2005, according to the assessment report.

The report also noted: “There were indications that some of the general partners who made strategic investments focused excessively on the takeover of an invested company but were not adequately prepared for its post-takeover management.”

Some, it added, encountered conflicts with existing management because of ambiguities over the extent of the fund’s participation in the management of the invested company.

The Financial Supervisory Services’ assessment concluded that competition among local funds “is intensifying but the size of the market for mergers and acquisitions remains fairly substantial.”

“With a number of large companies open to possible takeover activities and many strong, under-valued SMEs and others currently undergoing restructuring seeking new investors, investment opportunities for the private equity funds industry is likely to grow. As more (funds) turn to takeovers and competition intensifies, uncompetitive funds are less likely to see growth opportunities and the industry as a result will advance to a more mature stage.