Korea’s NH PE mulls investments in China, Indonesia

The private equity unit of Seoul-based NH Investment & Securities, which received approval last week from Korea’s financial regulator to launch a private equity fund, is considering opportunities in emerging markets in a move to pursue higher returns.

NH PE, the private equity unit of South Korean brokerage firm NH Investment & Securities, is looking for investment opportunities in China as well as Indonesia for their latest vehicle, two people familiar with the matter told Private Equity International.

The firm received approval last week from the Financial Services Commission (FSC), Korea’s financial regulator, to launch a private equity fund, according to a statement from FSC.

According to media reports, the firm plans to launch a KRW 200 billion ($180 million; €160 million) fund with an Indonesian general partner to invest in local companies mainly in the consumer goods industry.

A spokesperson for the firm declined to comment on the fund.

NH Investment & Securities has more than KRW 4.3 trillion in assets under management and is the fourth largest financial group in Korea by assets. A subsidiary of NH Financial Group (NH), it is the product of a merger of the brokerage units of Woori Financial and NH NongHyup Financial. Following the merger, NH PE was set up to aggregate the private equity funds of Woori and NH NongHyup.

NH Investment & Securities has invested in domestic funds including VIG Partners, which sold the Burger King franchise in Korea for $170 million in February this year, as well as Glenwood Private Equity, which bought Lafarge Holcim’s Korean subsidiary alongside Hong Kong-based private equity firm Baring Private Equity Asia in May.

Along with investing in mid-market Korean funds, the firm has made private equity investments, usually in mezzanine financing, on a case-by-case basis over the years, according to a Korean GP.

“The firm’s private equity investments are mainly in the Korean market and do not have any track record for investing overseas,” one of sources, who declined to be named, told PEI.

In March this year, NH inked an agreement with Indonesia's largest bank Bank Mandiri to provide credit facilities with local farmers. The announcement came two months after NH said it would launch an online bank in China alongside Beijing-headquartered China Co-op Group to provide insurance products, consumer banking, and internet banking.

Private equity funds were first introduced in South Korea in 2004 with the government’s aim to nurture local capital by aligning regulatory reforms with international standards and easing corporate restructuring processes. Over the past decade, the private equity industry has grown rapidly, with as much as 342 private equity funds registered with the FSC, managing assets valued at roughly KRW 60.3 trillion as of June 2016. Data from the financial regulator shows that local fund managers raised KRW 10.2 trillion in 2015, the highest number since 2004.

South Korean private equity firms mainly target domestic companies, but in recent years more have looked to invest in China and South-East Asia as the Korean market has matured and domestic competition has intensified; these firms include SG Private Equity, which invested in a Chinese pharmaceutical distributor; MBK Partners, which bought GSE Investment, a waste-to-energy and wastewater treatment business in China; and IMM Private Equity, which backed South Korean exhibition giant CJ media’s acquisition of Indonesian cinema chain Graha Layar Prima.

Indonesia is an attractive market for buyout firms because of several key trends: strong gross domestic product growth (5.2 percent year-on-year) and a rising middle class of consumers. The country’s middle class is forecast to swell by 90 million by 2030, with consumer spending set to rise by 7.7 percent a year to $1.1 trillion by 2030, according to data from research consultancy McKinsey Global Institute.