MSPEA signs $293m Korea carve-out

Morgan Stanley’s Asian private equity arm has acquired Hanwha’s construction materials business.

Morgan Stanley Private Equity Asia has agreed to acquire a unit of Korean conglomerate Hanwha in a deal worth KRW 300 billion ($293 million; €216 million), a source close to the matter confirmed to Private Equity International.

MSPEA will acquire Hanwha L&C, one of the parent company’s manufacturing arms, with KRW 141.3 billion of equity and take on the balance through existing debt arrangements. 

Hanwha L&C manufactures and sells PVC windows and doors, flooring materials, decorative films and sheets, and premium stone surfaces. Last year, it recorded KRW 719.8 billion in revenue and KRW 22.2 billion in operating profits, according to the statement. The business employs about 600 people.

MSPEA’s investment will be used to improve the company’s financial stability and expand its advanced materials business. The deal should be completed by the end of July 2014.

Korea’s private equity market has opened up in recent years, with public opinion somewhat improving and major distressed conglomerates in need of restructuring – prompting them to divest of non-core assets.

According to a recent AlixPartners study, one-quarter of 1,606 listed Korean companies are “at risk” of distress, meaning that they have a high probability of distress within three quarters.

The Korean government has also eased regulation to aid private equity firms in taking part in this opportunity. In March, new rules were released permitting private equity firms to acquire a company's entire business division, rather than just take a stake in the business, PEI reported earlier.

In addition, private equity-backed companies would be allowed to list on the domestic stock exchange, which in the past the rules didn't allow.

MSPEA is currently raising its $1.5 billion Asia fund, which was expected to make a final close last year. The firm has previously declined to comment on fundraising and did not respond to requests for an update.

However, it has been actively investing. Earlier this month, the firm privatised NASDAQ-listed Chinese agricultural business Yongye International, having previously had the proposal rejected by shareholders.

The consortium, led by Zishen Wu, Yongye's chairman and chief executive, agreed to pay $7.10 per share for all outstanding American Depository Shares, valuing the company at about $360 million – up from the initial $339 million bid in September last year.